Conventional 2-4 Unit Guidelines in Florida

The difference that decides most multi-unit files

On a 3 or 4 unit FHA purchase, the rental income from all units has to cover the entire mortgage payment before your own income is considered. If the building fails that test, FHA will not insure the loan. No exceptions.

Conventional applies no such test. The property is underwritten on value and your qualifying ratios in the ordinary way.

In high tax and high insurance areas, which describes much of Florida, that is frequently the whole ballgame. The full FHA rules are on our FHA multi-unit guidelines page.

FHA against conventional on 2 to 4 units

The pattern in practice: FHA suits the borrower with a bruised file and a duplex. Conventional suits the stronger file, and it suits the three and four unit buildings that cannot pass the FHA test.

Using rental income to qualify

Both routes let projected rent from the units you will not occupy help you qualify, and both apply a vacancy factor rather than counting the full amount.

The appraiser establishes market rent on a comparable rent schedule, so you do not need existing leases or sitting tenants to use it. What you need is an appraiser who understands small multi-family in that market.

This is the mechanism that lets ordinary buyers reach properties that would otherwise be out of range, and it is the part call centers most often get wrong.

Reserves, and why multi-unit files stall on them

Multi-unit purchases commonly require cash reserves after closing, measured in months of the full payment, and the requirement generally increases with unit count.

This catches buyers who have carefully assembled exactly enough for the down payment and closing costs and nothing more. The file is approvable right up until the reserve requirement appears.

It is entirely avoidable by knowing the number at the start. Gift funds and the sequencing of your accounts both matter here.

What to settle before you write an offer

1. Run the FHA self-sufficiency math on 3 and 4 unit buildings first. If it fails, you are having a conventional conversation.
2. Get an insurance quote early. On Florida multi-family with an older roof this can decide the deal.
3. Confirm reserve requirements for the unit count.
4. Confirm the appraiser will produce a comparable rent schedule.
5. Check whether the property is legally the number of units it is being sold as. Unpermitted conversions are common and they do not finance.

Common questions about conventional 2-4 unit financing

What is the difference between FHA and conventional on a 2-4 unit property?

The largest difference is the self-sufficiency test. FHA requires that on 3 and 4 unit properties the rental income alone cover the full mortgage payment, and denies the loan if it does not. Conventional applies no such test. FHA also allows a lower credit score and a higher debt ratio, while conventional mortgage insurance can generally be removed later.

Is there a self-sufficiency test on conventional loans?

No. That test is specific to FHA and applies only to 3 and 4 unit properties. This is why a triplex or fourplex that fails FHA can often be financed conventionally with the same borrower and the same building.

Can I count rental income to qualify on a conventional 2-4 unit purchase?

Yes. Projected market rent from the units you will not occupy can help you qualify, with a vacancy factor applied rather than counting the full amount. The appraiser establishes market rent on a comparable rent schedule, so existing leases are not required.

Do I have to live in the property?

For these owner-occupied terms, yes. Buying a 2 to 4 unit purely as an investment is underwritten as investment property, with different down payment requirements and pricing, or through a program such as DSCR that qualifies on the property income instead.

How much do I need in reserves for a multi-unit purchase?

Multi-unit files commonly require cash reserves after closing measured in months of the full payment, and the requirement generally increases with unit count. This is the item that most often surprises buyers who saved exactly enough for the down payment and closing costs.

Which is better for a duplex, FHA or conventional?

It depends on your credit and your cash. FHA asks 3.5 percent down and works from a lower score. Conventional asks 5 percent down on an owner-occupied 2 to 4 unit but avoids the self-sufficiency test entirely on larger buildings. On a duplex specifically the self-sufficiency test does not apply either way, so the decision comes down to your file.

Jason J. Sarji, President and Owner, NMLS #374700. AAA Capital Funding, Inc., NMLS #374739. Serving all 67 Florida counties since 1997. Equal Housing Opportunity.