Photo · A mortgage is just a tool, and like any tool the right one depends on the job. The three you'll actually choose between are FHA, conventional, and VA. The difference between them isn't prestige — it's down payment, mortgage insurance, and who qualifies. Get this right and you save real money every month for decades.
The three loans, side by side
| FHA | Conventional | VA | |
|---|---|---|---|
| Min. down | 3.5% | 3%–5% | 0% |
| Min. credit | 580 (500 w/ 10%) | ~620 | No set floor |
| Mortgage insurance | MIP — usually for life of loan | PMI — drops at 20% equity | None (funding fee instead) |
| Best for | Lower credit / lower down | Strong credit, avoiding lifetime MI | Veterans & active duty |
VA loans require eligible military service. If that's you, it's almost always the strongest option on this table — no down payment and no monthly mortgage insurance.
PMI vs. MIP — the insurance you pay for the bank
When you put down less than 20%, the lender adds mortgage insurance to protect itself if you default. On conventional loans it's called PMI and it falls off automatically once you reach 20% equity. On FHA loans it's called MIP, and on most modern FHA loans it stays for the life of the loan unless you refinance.
That single difference is why a buyer with strong credit often chooses conventional even at a slightly higher rate: escaping lifetime mortgage insurance can be worth more than the rate gap. A buyer rebuilding credit chooses FHA to get in the door, then refinances into a conventional loan later to shed the MIP.
The move most agents skip: house-hacking with FHA
Here's the part of financing that separates a salesperson from a process specialist who thinks like an investor. An FHA loan isn't limited to a single-family house. You can use the same 3.5%-down FHA loan to buy a 2-, 3-, or 4-unit building — a duplex, triplex, or fourplex — as long as you live in one of the units.
You live in one door. Your tenants in the other doors pay rent that covers most — sometimes all — of your mortgage. Your housing cost can drop to a fraction of what renting would cost, while you build equity on a much larger asset. This is house-hacking, and it's the single most powerful starter move in real estate.
The owner-occupancy rule
FHA loans are for primary residences, so the rule is simple: you must move into one of the units within 60 days of closing and live there for at least one year. After that year you can move out, keep the building as a pure rental, and — because you've now lived in a home and learned the ropes — do it again with your next purchase.
This rule is what makes the low down payment possible. The government backs FHA loans to help people house themselves, not to subsidize investors. By living in your investment for a year, you earn access to terms a pure investor could never get.
Using rental income to qualify
On a 2–4 unit purchase, lenders will count a portion of the projected rent from the units you won't occupy toward the income they use to qualify you. Typically they credit around 75% of market rent (the haircut covers vacancy and maintenance). That projected rent can be the difference between qualifying for a $400K single-family and a $700K fourplex.
An appraiser fills out a rent schedule estimating market rents for the building, and the lender folds that number into your debt-to-income calculation. This is why two buyers with identical incomes can qualify for very different properties — the multi-unit buyer brought income-producing math to the table.
House-hacking, done right
- Run the numbers on a 2–4 unit before defaulting to a single-family home
- Verify market rents with real comps, not the seller's optimistic figures
- Budget a reserve — you're now a landlord and things break
- Plan for the one-year occupancy before you move out
- Assume every duplex cash-flows — many don't; run each one
- Forget that you'll manage tenants (or pay someone who will)
- Buy a building that fails inspection hoping rent will fix it
- Skip the owner-occupancy year — it's a loan condition, not a suggestion
Financing questions buyers actually ask
Can I buy a 4-plex with an FHA loan?
Yes. FHA permits 1–4 unit properties at the same 3.5% minimum down payment, provided you live in one of the units for at least a year. A fourplex is the largest building you can finance this way — five units or more is considered commercial.
What's the difference between PMI and MIP?
PMI is private mortgage insurance on conventional loans and it cancels once you reach 20% equity. MIP is FHA's version and on most current FHA loans it lasts the life of the loan. Many buyers use FHA to get in, then refinance to conventional to drop the insurance.
Do I need 20% down to buy a home?
No. That's the most common myth. FHA needs 3.5%, many conventional programs allow 3%–5%, and VA allows 0% for eligible veterans. Putting down less than 20% just means you'll carry mortgage insurance until you build equity.
How does rental income help me qualify for a duplex?
Lenders credit roughly 75% of the projected market rent from the units you won't live in toward your qualifying income. That extra income can dramatically raise the price you qualify for on a 2–4 unit compared to a single-family home.