Overview

First-time real-estate investors should match financing to their plan: live in one unit and rent the rest (house‑hack), buy to hold, or buy-to-flip. Each loan type has different occupancy requirements, down-payment expectations, and lender underwriting that will affect cash flow and exit options.

Quick guide to common loan types

  • FHA (Federal Housing Administration): Allows 1–4 unit properties if you occupy one unit as your primary residence. FHA buyers with a credit score of 580+ can qualify for the standard 3.5% down payment; lower scores typically need larger down payments. FHA insurance and specific appraisal/condition rules apply (see HUD) (https://www.hud.gov).

  • VA (Veterans Affairs): Eligible veterans and certain service members can get a zero-down mortgage for primary‑residence purchases, including some multi‑unit properties if occupied by the veteran. Lenders will still run credit and underwriting; check VA rules at VA.gov (https://www.benefits.va.gov/homeloans/).

  • USDA (Rural Development): Offers 0% down loans for eligible rural properties and income-qualified borrowers. Property location and household income limits apply — see USDA Rural Development for eligibility (https://www.rd.usda.gov).

  • Conventional loans: Backed by Fannie Mae or Freddie Mac or offered as portfolio products. Conventional financing for owner‑occupied purchases can require as little as 3% down for qualified first‑time buyers, but conventional loans for investment properties usually require substantially higher down payments (often 15–25%) and stricter reserves.

  • Renovation and rehab loans: FHA 203(k) and Fannie Mae HomeStyle loans fund purchase plus repairs, useful for investors who plan to add value rather than pay cash for fixes. FHA 203(k) has owner‑occupancy rules and specific contractor/draw requirements (see FHA 203(k) guidance). For details, see our guide to qualifying for an FHA 203(k) renovation loan: https://finhelp.io/glossary/how-to-qualify-for-an-fha-203k-renovation-loan/.

  • Investor-specific and non‑QM/DSCR loans: Portfolio and non‑conforming products (including debt-service-coverage‑ratio loans) exist for buyers who won’t occupy the property or who rely on projected rental income for qualification. These often require higher rates, larger down payments, and more cash reserves.

How occupancy and “house‑hacking” change your options

If you plan to live in one unit (house‑hack a duplex, triplex, or quad), you may use owner‑occupant programs—FHA, VA, USDA, or conventional first‑time buyer programs—which lower upfront cash needs. If you won’t occupy the property, plan for stricter investor underwriting and higher down payment requirements.

Practical example

I worked with a buyer who purchased a duplex with 3.5% down via an FHA loan and lived in one unit while renting the other. The rental covered a large portion of the mortgage, reducing monthly net housing cost and building equity while the property appreciated.

Key eligibility and underwriting checkpoints

  • Credit and income: Lenders evaluate credit score, debt‑to‑income (DTI), employment history, and documentation. Programs differ on minimums.
  • Occupancy: FHA and VA require owner‑occupancy for most benefits; abusing occupancy rules can lead to loan denial or recall.
  • Reserves: Investment loans commonly require several months’ mortgage reserves, proof of cash for repairs, and reserves for vacancy periods.
  • Property type: Single-family, condos, and multi‑family units are not all treated the same. Some condo projects have investor concentration limits.

Common mistakes first‑time investor-borrowers make

  • Assuming every low‑down-payment loan works for purely investment purchases. Owner‑occupant programs are not intended for absentee investors.
  • Underestimating renovation costs and timelines—use renovation loans or plan larger contingency reserves.
  • Not getting pre‑approval from a lender experienced with investor scenarios; inexperienced lenders can miscode the loan and delay closing.

Professional tips

  1. Get pre‑approved by a mortgage lender that handles investor and multi‑unit loans. In my experience, an investor‑savvy lender identifies occupancy issues early and suggests suitable product options.
  2. Compare loan offers on total cost: interest rate, mortgage insurance (MI), lender fees, and required cash reserves. Lower rate + higher MI or high fees can be more expensive overall.
  3. Plan for exit strategy: if you plan to convert to a rental after meeting occupancy seasoning (often 12 months for some programs), check any loan restrictions or local landlord rules.
  4. Use renovation loans when needed — FHA 203(k) and HomeStyle allow financing repairs into the mortgage; see our FHA 203(k) guide for qualification steps: https://finhelp.io/glossary/how-to-qualify-for-an-fha-203k-renovation-loan/.

When to consider portfolio or DSCR loans

If you are buying properties without occupying them, or you’re self‑employed and want underwriting to rely more on rental income than W‑2 wages, look at non‑QM DSCR or portfolio products. Expect higher rates and deeper documentation requirements.

Where to find authoritative rules and assistance

Internal resources

Final takeaway

Match the loan to your plan: use owner‑occupant programs like FHA, VA, or USDA for house‑hacking and lower cash needs; use conventional or investor-specific loans when you won’t occupy the property. Speak with a mortgage professional familiar with investor scenarios and treat this article as educational, not personal financial advice.

Disclaimer: This article is educational and does not replace personalized advice from a licensed mortgage professional or financial advisor. Regulations and program terms can change—verify current requirements with the program administrator (HUD, VA, USDA) or your lender.