House hacking is a homeownership strategy where you live in a property as your primary residence while renting out another part of it. A common example is purchasing a duplex, living in one unit, and renting the other.
The strategy can help offset some housing expenses while giving a buyer experience as both a homeowner and landlord. However, rental income is not guaranteed, and financing, occupancy rules, maintenance, insurance, and landlord responsibilities should all be considered before buying.
What Is House Hacking?
House hacking generally means purchasing a primary residence that also provides an opportunity to generate rental income.
Common examples include:
- Buying a duplex and renting the second unit
- Living in one unit of a triplex or fourplex
- Purchasing a home with an accessory dwelling unit (ADU)
- Renting eligible space within a single-family home
The exact financing rules depend on the property and loan program. Rental income from a separate unit can also be treated differently from income generated by renting a room inside your own dwelling.
Why Do Homebuyers Consider House Hacking?
The biggest attraction is the potential for rental income to offset part of the cost of owning the property. Instead of purchasing a separate investment property, you are buying a home you intend to occupy while also becoming a landlord.
Owner-occupied financing may also offer different down payment and underwriting options than financing a property purchased entirely for investment purposes.
House hacking does not guarantee that rental income will cover the mortgage or make the property profitable. Vacancy, repairs, insurance, taxes, utilities, maintenance, and other expenses can reduce or eliminate the expected financial benefit.
Can Rental Income Help You Qualify for the Mortgage?
In some cases, yes. Certain mortgage programs allow eligible rental income from an owner-occupied property to be considered during underwriting.
For example, current Fannie Mae guidelines recognize rental income from a two-to-four-unit principal residence when the borrower occupies one of the units, subject to documentation and calculation requirements.
FHA guidelines can also permit qualifying rental income from additional units of an owner-occupied two-to-four-unit property. Additional requirements can apply, particularly to three-unit and four-unit properties.
Do not assume that every dollar of expected rent will count toward mortgage qualification. The amount a lender can use depends on the loan program, property, appraisal, leases, rental history when applicable, and underwriting guidelines.
What Loans Can Be Used for House Hacking?
Several mortgage programs may be available when the borrower genuinely intends to occupy the property as a primary residence.
FHA Loans
FHA financing can be used for qualifying owner-occupied properties with up to four units. FHA's minimum required investment can be as low as 3.5 percent for borrowers who meet applicable requirements.
Three-unit and four-unit FHA properties are also subject to a self-sufficiency test involving the property's expected rental income and housing expense.
VA Loans
Eligible Veterans and service members may use VA-backed financing to purchase qualifying multifamily property while occupying one of the units as their primary residence. VA generally permits up to four residential units when one eligible Veteran is purchasing.
Qualified borrowers with sufficient entitlement may be able to purchase without a down payment, subject to VA and lender requirements. VA-backed loans also do not require monthly private mortgage insurance.
Conventional Loans
Conventional financing can also be available for qualifying two-to-four-unit primary residences. Current Fannie Mae guidelines allow rental income from eligible two-to-four-unit principal residences to be considered when properly documented and calculated.
Down payment, mortgage insurance, reserves, credit, income, and other requirements depend on the specific conventional program and borrower profile.
Primary Residence Occupancy Must Be Legitimate
House hacking relies on owner-occupied financing only when you genuinely intend to use the property as your primary residence under the requirements of your mortgage.
Do not claim that a property will be your primary residence simply to obtain financing terms intended for owner-occupants when you actually plan to use the entire property as an investment.
Occupancy requirements vary by loan program and transaction. Review the occupancy provisions in your mortgage documents and discuss your plans with your lender before closing.
What Are the Risks of House Hacking?
Rental income can help with housing expenses, but becoming a landlord creates additional responsibilities and risks.
Consider issues such as:
- Periods when a unit is vacant
- Unexpected repairs and maintenance
- Tenant screening and lease management
- Reduced privacy when tenants live nearby
- Landlord insurance considerations
- Local rental and zoning requirements
- Legal responsibilities involving tenants
- Property taxes, utilities, and other operating expenses
Florida buyers should also evaluate homeowners insurance and flood insurance when applicable. Insurance needs may differ depending on the property type and how portions of the home are rented.
Is House Hacking Right for You?
House hacking may be worth considering if you want to combine homeownership with rental income and are comfortable taking on landlord responsibilities.
Before buying, evaluate the property using realistic rental and expense assumptions. Consider what happens if a tenant moves out, rent is lower than expected, or the property requires a major repair.
Maintaining financial reserves can be especially important because the mortgage payment remains your responsibility even when a rental unit is vacant or a tenant fails to pay.
The Bottom Line
House hacking can provide a way to purchase a primary residence while generating rental income from another unit or eligible portion of the property. Duplexes, triplexes, and fourplexes are common examples, and FHA, VA, and conventional financing may offer options for qualified owner-occupants.
The strategy works best when you understand both sides of the equation. Compare the financing requirements and potential rental income with realistic estimates for vacancies, repairs, insurance, taxes, maintenance, and other expenses.
Loan Wolf Lending can help Florida homebuyers explore financing for owner-occupied multifamily properties and determine how eligible rental income may be considered. Call 754-755-3075 to discuss your house hacking and home financing options.