What Is House Hacking? The Complete Guide

House hacking means buying a home you live in and renting out part of it, such as the other units of a duplex, spare bedrooms, or an accessory dwelling unit (ADU), so the rent pays part of your housing cost. It works because loans for a home you occupy allow 3.5% down with FHA, 5% down on a conventional 2-4 unit loan, or 0% down with VA, compared with the larger down payment an investment property loan requires. The trade is that you must live there: FHA and standard conventional loans require you to move in within 60 days of closing and plan to stay at least a year. Whether it beats renting depends on how much of the full monthly payment the rent covers in your market.

Why house hacking works: owner-occupied loan terms

Owner-occupied loan programs cover buildings with up to four units. The main options:

• FHA loans. Borrowers with a credit score of 580 or higher can borrow up to 96.5% of the price (3.5% down) on a 1-4 unit home. At least one borrower must move in within 60 days of signing and intend to stay at least one year. For 2026, FHA loan limits start at $693,050 for two units, $837,700 for three, and $1,041,125 for four in lower-cost counties, and rise to $1,599,375, $1,933,200, and $2,402,625 in the highest-cost areas.
• Conventional loans. Conventional lenders can offer 5% down on a 2-4 unit primary residence. Freddie Mac allows it on purchases approved through its automated underwriting system that stay within the baseline conforming loan limit. The standard deed of trust used for these loans requires you to occupy the home within 60 days and keep living there for at least one year unless the lender agrees otherwise. Lying about your plan to live there is a default under the same document.
• VA loans. Eligible veterans and service members can buy a home of up to four units that they will live in, with no down payment as long as the price is not higher than the appraised value.

Lenders can also count some of the rent toward your qualifying income. FHA uses 75% of the lower of the appraiser's market rent or the lease rent from the other units when you have no rental history on the property. Rent from roommates inside your own unit is different: FHA counts it only if you already have a 12-month history of receiving it, so new room rent usually will not help you qualify. Fannie Mae also starts at 75% of gross rent and requires the lender to document your current housing payment first. A Fannie Mae borrower with under a year of landlord experience can use the rent only to cancel out the new home's payment, not as extra income. Financing your first house hack compares the loan types in detail.

The main ways to house hack, compared

A 2-4 unit building gives you and your tenants separate homes under one mortgage. On a three- or four-unit building, FHA requires the appraiser's market rent for all units, less 25% (or the appraiser's higher vacancy and maintenance estimate), to cover the full monthly payment. House hacking a duplex covers what to check in a listing and how a duplex compares with a fourplex.

Renting rooms needs no new purchase if you already own a house with spare bedrooms. You share your kitchen and living space, and local rules on unrelated occupants apply. See house hacking by renting spare rooms.

Adding an ADU (a second, smaller home on the same lot, such as a backyard cottage or garage conversion) turns a single-family property into one with rental income, but it requires permits and up-front construction money. See building an ADU for house hacking income.

Hosted short-term rentals are regulated city by city, and the loan matters too: on an FHA loan for a 2-4 unit home or a home with an ADU, you sign HUD form 92561 agreeing not to rent any part of it for less than 30 days. New York City, for example, allows stays under 30 days only if the host is registered, lives in the unit with the guests, and hosts no more than two paying guests at a time. See house hacking with Airbnb.

Worked example: monthly cost on a duplex

This example uses a $400,000 duplex bought with FHA financing at 7.3%, close to the 7.32% average 30-year fixed rate Freddie Mac reported for October 22, 2026. Taxes, insurance, and rent are assumptions; use real quotes and local rents for your own numbers.

You would bring $14,000 for the 3.5% down payment, plus closing costs and reserves. If a comparable apartment rents for $1,800, this house hack costs about $140 a month more in cash than renting. Over the first year, though, about $3,765 of your payments reduces the loan balance, and that is equity you keep. At lower prices, higher rents, or a three- or four-unit building, the rent can cover more of the payment. House hacking vs traditional renting runs the full comparison over several years.

Steps from pre-approval through the first year

1. Get pre-approved for the property type you want. Tell the lender you plan to buy a 2-4 unit home or rent rooms, and ask how it will count rent, what reserves it requires, and which loan limit applies in your county.
2. Run the numbers on every listing. Use the full payment (principal, interest, taxes, insurance, and mortgage insurance), local rents for comparable units, and a set-aside for vacancy and repairs.
3. Verify the property before your offer. Confirm with the city or county that each unit is legal, check zoning for room rentals or an ADU, and get copies of any existing leases.
4. Use the contract period. Get an inspection and insurance quotes that cover the rented part. On a 2-4 unit purchase, the appraisal includes a market rent estimate that lenders use for qualifying.
5. Close and move in within 60 days. If the unit you plan to occupy has a tenant, make sure it will be vacant in time.
6. Set up the rental side. Open a separate bank account, sign written leases, and keep records. The IRS requires you to split shared costs such as mortgage interest, property tax, and utilities between the rented and personal parts of the home, usually by square footage or number of rooms.
7. Run the first year. Screen every applicant with the same written criteria, handle repairs promptly, and report rent and expenses on Schedule E.
8. Decide your next move after 12 months. You can stay, move out and rent your unit too, or sell. FHA generally insures only one principal-residence loan per borrower at a time, so buying a second home while keeping an FHA loan usually takes a conventional or VA loan, unless you qualify for an exception such as a job move of more than 100 miles. House hacking exit strategies compares the options.

Common house hacking risks and mistakes

• Counting on rent that the appraisal will not support. FHA uses the lower of the appraiser's market rent and the lease rent, so plan with local comparable rents rather than the listing's projection.
• Skipping FHA's rent test on a 3-4 unit building. Run the self-sufficiency test described above on every listing before you offer; a building that fails it cannot get the FHA loan.
• Buying units that are not legal. FHA requires the property to comply with zoning, and its appraiser must report whether the current use complies (a use the local zoning office accepts as "legal non-conforming" can pass). A listing that advertises an unpermitted basement apartment as a second unit can fail that review, so check permits before you count its rent. Zoning and permits for house hacking explains what to look up.
• Moving out early or never moving in. Owner-occupied rates and down payments depend on your occupancy promise. Misstating it is a loan default.
• Thin cash reserves. FHA requires reserves equal to three months of payments after closing on a three- or four-unit home, and a vacancy or a failed water heater in the first year comes out of your pocket.
• Keeping a standard homeowners policy. A policy written for a single-family home you occupy may not fit rented units or rooms. See insurance for house hackers.
• Missing the tax rules on sale. The home sale exclusion ($250,000 of gain, or $500,000 for married couples filing jointly) generally requires that you owned the home and lived in it for at least two of the five years before the sale, so selling soon after the one-year loan requirement usually does not qualify. Even when you qualify, the exclusion does not cover the share of gain from a rented unit that is separate from your own, and you cannot exclude gain equal to the depreciation you were allowed after May 6, 1997. See house hacking tax benefits.