FHA gets you into a two-to-four-unit building for 3.5% down, with credit standards conventional lenders will not touch. You pay for the favor: a 1.75% upfront fee and monthly mortgage insurance that, at that down payment, lasts the life of the loan. Conventional now allows 5% down on 2-4 unit owner-occupied homes at conforming loan sizes, its insurance can be canceled, and it skips FHA’s self-sufficiency test on 3-4 units. I bought my duplex with FHA. The head-to-head is below. Figures checked August 2026.
FHA vs. conventional at a glance
| FHA | Conventional (Fannie Mae rules) | |
|---|---|---|
| Minimum down, 2-4 unit owner-occupied | 3.5% | 5% at conforming loan sizes on an automated (DU) approval; if the loan is manually underwritten, 15% on a duplex (85% LTV) and 25% on a 3-4 unit (75% LTV)[S3] |
| Minimum credit score | 580 for 3.5% down (500 to 579 needs 10% down; many lenders ask for more) | None on an automated (DU) approval since Nov 2025[S2]; manually underwritten 2-4 unit purchases need 680 (debt-to-income up to 36%) or 700 (up to 45%) on a duplex and 660 or 680 on a 3-4 unit, per the Eligibility Matrix. Fannie’s general 620 manual floor does not apply to these loans[S3] |
| Upfront insurance fee | 1.75% of the loan, usually rolled into it | None |
| Monthly insurance | MIP, 0.55% a year at minimum down, life of the loan | PMI, priced by credit score, can be canceled |
| Extra test on 3-4 units | Yes, the self-sufficiency test | No |
| Duplex loan cap (2026) | $693,050 in most counties | $1,066,250 baseline |
What each loan actually is
The two loan types, in plain terms
An FHA loan is a mortgage insured by the Federal Housing Administration, part of HUD. Because the government eats the loss if you default, lenders accept small down payments and mid-range credit. You pay the insurance that makes that possible.
A conventional loan has no government insurance. Most follow Fannie Mae or Freddie Mac rules. Put down less than 20% and you pay private mortgage insurance (PMI), but PMI is priced on your credit and it can end without refinancing.
The loan I actually used on my duplex
My duplex is an FHA purchase. I live in one unit and rent the other, plus the basement. When I bought, the choice was not close: conventional loans then required 15% down on a duplex, and FHA asked 3.5%.
Saving the difference would have taken me years I did not want to spend renting. I accepted the upfront fee and the permanent insurance as the cost of starting sooner, and the other unit’s rent has been paying me back ever since.
What changed on conventional down payments in 2023
That 15% rule is gone. Since late 2023, Fannie Mae allows 5% down on 2-4 unit owner-occupied purchases at conforming loan sizes. The gap between the two loans is much smaller than when I chose, which is exactly why the comparison is worth running both ways now. If you want the full walkthrough of living beside your tenant, I wrote about it in how to buy a duplex and live in one side.
The down payment gap in dollars
| Purchase price | FHA 3.5% down (cash) | FHA upfront fee (financed) | Conventional 5% down (cash) |
|---|---|---|---|
| $170,000 | $5,950 | $2,871 | $8,500 |
| $300,000 | $10,500 | $5,066 | $15,000 |
| $450,000 | $15,750 | $7,599 | $22,500 |
At $300,000 the cash difference is $4,500. That is real money, but it is no longer the wall it was at 15%.
Both programs also want money left over after closing, and neither table above shows it. Fannie Mae requires six months of the full payment in reserves on a 2-4 unit principal residence;[S4] FHA requires three months of the payment in reserves on a 3-4 unit purchase (HUD Handbook 4000.1; a duplex carries no reserve requirement on an automated approval, one month if manually underwritten).[S5] On a $3,100 payment that is $18,600 (Fannie) or $9,300 (FHA) you have to show, on top of the down payment and closing costs. Reserves are assets you keep, not cash you spend, but they have to be there.
Note the FHA upfront fee: you rarely feel it at closing because it rides on the loan, but you pay interest on it for decades. And before you assume you must save every dollar yourself, check whether your county or state will cover part of it: first-time buyer programs did it for me, and my down payment assistance guide for duplexes lists what each state offers.
Mortgage insurance: where FHA charges for the favor
FHA’s monthly insurance at minimum down is 0.55% of the loan per year on a base loan of $726,200 or less, and 0.75% above that.[S1] On a $290,000 loan that is about $133 a month, and at 3.5% down it never cancels. It ends only when the loan ends, usually by refinancing. Put 10% or more down and it drops off after 11 years instead.
How conventional PMI is priced
Conventional PMI is priced on your credit score and down payment, so there is no single rate. With strong credit it often costs less than FHA’s flat rate; with thin credit it can cost more. The bigger difference is that PMI ends. On a single-family primary home, federal law lets you request cancellation at 80% of the original value and requires automatic termination at 78%. On 2-4 unit homes the legal guarantee is narrower and your servicer follows the investor’s rules, which are stricter, but a path to zero exists without refinancing. Your credit score drives PMI pricing more than any other input; here is what score you actually need.
The 3-4 unit trap: FHA’s self-sufficiency test
This rule is easy to miss until a lender applies it. On 3-4 unit properties (not duplexes), FHA requires the building to carry itself on paper: the appraiser’s market rent for ALL units, including the one you will live in, minus the greater of the appraiser’s vacancy-and-maintenance factor or 25%, must cover the full monthly payment, taxes, insurance, and MIP included (HUD Handbook 4000.1, Net Self-Sufficiency Rental Income).[S5] When the appraiser’s factor is 25% or less, that is the familiar 75%-of-rent shortcut; when the appraiser sets a higher factor, less of the rent counts. Lenders apply this test to their own rent and expense figures, so confirm it with your lender before you plan around it.
A worked example on a $400,000 triplex
A worked example. You offer on a $400,000 triplex with 3.5% down, and the full monthly payment comes to $3,100. The appraiser puts market rent at $1,300 per unit, $3,900 total. The test number is 75% of $3,900, which is $2,925, assuming the appraiser’s vacancy and maintenance factor is no more than 25%. That is $175 short of $3,100, so the loan is denied, even though you would be living in one unit and paying most of that $3,100 as your own housing cost anyway. If the appraiser had set a 35% factor, only $2,535 would count and the gap would be $565.
Two ways around the self-sufficiency test
At current prices and rates, plenty of 3-4 unit deals fail this test. Two ways around it: buy a duplex, which is exempt (and which the new ROAD Act rules favor in other ways too), or go conventional, which has no such test and now allows 5% down at conforming sizes.
Loan limits, quickly
| Units | FHA limit 2026 (most counties) | Conforming baseline 2026 |
|---|---|---|
| 1 | $541,287 | $832,750 |
| 2 | $693,050 | $1,066,250 |
| 3 | $837,700 | $1,288,800 |
| 4 | $1,041,125 | $1,601,750 |
FHA limits are set county by county; the figures above are the 2026 floor, which is where most affordable metros sit. Expensive counties go higher. In the markets I cover, the limit is never the check that kills a deal; prices fail on condition and rent math long before they reach the cap. If your price is above both columns, conventional with a bigger down payment is usually the only route.
How rental income counts when you qualify
Both programs let the other units help you qualify, which is the quiet superpower of buying 2-4 units instead of a single-family house. The rules differ.
FHA: the lender can add 75% of the rent for the units you will not occupy to your qualifying income, using the appraiser’s market rent or the signed lease, whichever is lower. You do not need landlord experience.
How conventional counts rent from the other units
Conventional: it depends on your history. With a year of landlord experience (or a year collecting rent), 75% of the subject-property rent counts, and it is not limited to the building’s own payment. Without that history, rent from the building counts only up to the property’s own monthly payment, so it can zero out the new bill but not stretch your budget beyond it. And if you currently pay no rent and own no home, the building’s rent may not count at all. Lenders verify all of it, so bring documents, not hopes.
Which loan should you pick?
| Your situation | Lean |
|---|---|
| Every dollar of savings is already spoken for | FHA, and check assistance programs first |
| Credit in the low 600s | FHA, its insurance pricing ignores your score |
| Strong credit and 5% saved, buying a duplex | Price conventional first, PMI will likely be cheaper and it cancels |
| Buying a triplex or fourplex with minimal down | Run the self-sufficiency test before you fall in love; conventional avoids it |
| You want the insurance to end someday | Conventional, or FHA with 10% down |
| Price above your county’s FHA limit | Conventional or a bigger down payment |
Get both quotes on the same day from the same lender and compare the full monthly payment, not the rate. This page is education and my own experience, not advice; your lender runs your actual numbers.
One thing this comparison does not cover is how much building either loan lets you buy once the second unit’s rent is counted. That math is in how much house you can afford when you house hack.
Price both loans on a real listing.
The free mortgage calculator. Enter the price twice, once with 3.5% down plus MIP and once with 5% down plus PMI, and compare the full monthly payments side by side.
Frequently asked questions
Can I use an FHA loan on a duplex?
Yes. FHA covers owner-occupied buildings up to four units, and you must live in one unit for at least a year. Duplexes get the program’s best treatment: the low down payment without the self-sufficiency test that applies to 3-4 units.
Does FHA mortgage insurance ever go away?
At 3.5% down, no. It runs for the life of the loan and ends only when you refinance or pay the loan off. With 10% or more down it terminates after 11 years.
Can I really put 5% down on a triplex with a conventional loan?
Yes, since a late 2023 Fannie Mae change, for owner-occupied purchases at conforming loan sizes on an automated (DU) approval. Manually underwritten loans are stricter: 85% financing on 2 units and 75% on 3-4 units, with 680/700 and 660/680 minimum scores (Eligibility Matrix, 5 August 2026). You will also need six months of the payment in reserves.
Can I get a second FHA loan later?
Generally you can hold only one FHA loan at a time, with narrow exceptions such as relocating for work or a growing family. A common path is FHA for the first building, then conventional for the next one.
What is a conventional loan?
A conventional loan is defined as a mortgage that is not insured by a federal agency and is underwritten to guidelines set by Fannie Mae or Freddie Mac.
Sources: HUD Mortgagee Letter 2025-23 (2026 FHA loan limits) · HUD Mortgagee Letter 2023-05 (MIP rates) · HUD Handbook 4000.1 (self-sufficiency test, rental income) · Fannie Mae eligibility and pricing (LTV limits, conforming limits) · CFPB on PMI removal. All checked August 19, 2026.
Get started with the newsletter!
Useful, relevant analysis, tools, tricks, and what you need to know on the journey to financial freedom. From the van years to a duplex, the plain math and none of the hype.
Subscribe and get the free $0-to-First-Property Roadmap to start.
No spam. Unsubscribe in one click.
Want the deeper toolkit? The guides and spreadsheets are in the shop, from $5, and the free tools stay free either way.
Sources
- [S1] U.S. Department of Housing and Urban Development (HUD), ML 2023-05, Feb 22, 2023; eff. Mar 20, 2023, read 24 September 2026: “Less than or equal to $726,200” www.hud.gov.
- [S2] Fannie Mae, SEL-2025-09 Nov. 5, 2025, read 24 September 2026: “Selling Guide Announcement (SEL-2025-09) Nov. 5, 2025" … "Minimum credit score requirements will no longer apply to loans submitted to DU." … "The minimum representative credit score requirement of 620 for loan casefiles for one borrower and minimum…” singlefamily.fanniemae.com.
- [S3] Fannie Mae, Eligibility Matrix dated August 5, 2026, read 4 October 2026. Standard eligibility, DU: principal residence purchase, 2-4 units, maximum 95% LTV/CLTV/HCLTV (page 2). Manual underwriting: 2-unit principal residence purchase, maximum 85% LTV, minimum representative credit score 680 at DTI up to 36% and 700 at DTI up to 45%; 3-4 unit, maximum 75% LTV, 660 and 680 (page 4). The 620 manual minimum appears for one-unit limited cash-out refinances, not for 2-4 unit purchases. singlefamily.fanniemae.com.
- [S4] Fannie Mae Selling Guide B3-4.1-01, Minimum Reserve Requirements, read 4 October 2026: “Six months’ reserves for … a two- to four-unit principal residence transaction.” selling-guide.fanniemae.com.
- [S5] U.S. Department of Housing and Urban Development, Single Family Housing Policy Handbook 4000.1 (Update 18, August 2026), section II.A.4.c.xii(I)(3) Net Self-Sufficiency Rental Income (market rent less the greater of the appraiser’s vacancy and maintenance factor or 25%, 3-4 units) and the reserve requirements for 3-4 unit properties (three months of PITI; one month on 1-2 units when manually underwritten). Standard reading of the handbook, 4 October 2026; the passage was not re-opened verbatim for this revision. www.hud.gov.
Revised 4 October 2026: the head-to-head table’s conventional column previously read “620 if manually underwritten” and “5% at conforming loan sizes” without the DU/manual split; the Eligibility Matrix figures replace it, the reserve requirements were added, and the self-sufficiency test now states the greater-of rule behind the 75% shortcut.