House Hacking 2026: Which Mortgage Products Work and How to Structure Rental Income

House hacking means purchasing a 2-4 unit property, occupying one unit, and renting the others to reduce or eliminate the net housing cost. Done correctly, the tenants' rent covers a significant portion or all of the mortgage payment. The mortgage products that support this strategy are specific, and structuring rental income correctly in the loan file is non-trivial.

Best Mortgage Products for House Hacking

• ✦FHA 3.5% down on 2-4 unit: the most accessible entry point; only 3.5% down required with 580 FICO; 10% down required at 500-579 FICO
• ✦VA with no down payment on 2-4 unit: the most favorable terms for veterans; $0 down, no PMI, funding fee exemptions available
• ✦Conventional 2-unit with 15% down: higher FICO required but cleaner long-term cost structure without MIP
• ✦Conventional 3-4 unit with 25% down: typically the wrong choice for a first-time house hacker due to the capital requirement, but available

Using Rental Income to Qualify

For non-owner-occupied units that are already leased: use 75% of documented lease amounts. For vacant non-owner-occupied units: use 75% of market rent from the appraiser's rent schedule. The rental income is added to the borrower's qualifying income, which improves DTI and can offset the higher payment from the multi-unit PITI. Document rental income in Section 3 of the 1003 with supporting exhibits.

FHA Self-Sufficiency on 3-4 Units

For FHA 3-unit and 4-unit house hacks, the property must pass the self-sufficiency test: 75% of gross market rents from all units must cover or exceed monthly PITI. Run this test before the borrower goes under contract. If the property fails, FHA is not an option regardless of the borrower's personal income.

Tax and Long-Term Considerations

When part of a property is rented, a portion of mortgage interest, property taxes, and depreciation are allocated to the rental portion and deductible as rental expenses. The borrower should consult a CPA on how to allocate costs between personal and rental use from day one. Depreciation recapture applies upon eventual sale of the rental portion.