FHA loan for a 2-4 unit home in Indianapolis

Can you use an FHA loan to buy a duplex, triplex, or fourplex in Indianapolis and live in one unit? Yes. FHA, the Federal Housing Administration, insures the mortgage, and a lender makes the loan. For case numbers assigned on or after January 1, 2026, Marion County's FHA limits are $541,287 for one unit, $693,050 for two, $837,700 for three, and $1,041,125 for four (HUD Mortgagee Letter 2025-23).

The limit is only the start. You must move in within 60 days and plan to stay at least a year. A three- or four-unit home must pass a rent test. A lender counts only part of the future rent, and it can still say no. The caps limit the insured loan, not the sale price.

House hacking here means buying a small multi-unit building, living in one unit, and renting the others to help offset the cost. The rent helps only while tenants pay. When a unit sits empty, you still owe the full payment and you still fix what breaks. Nothing here is a loan approval or a promise of rent.

How 2, 3 and 4 units compare

Before real estate I taught high school Anatomy and Physiology for five years, and I still like to take a big topic one piece at a time. Start with this table, then read the rule behind each column.

Marion County sits at the 2026 national floor, which HUD's 2026 FHA county file marks as limit type S (HUD file layout). The floor is 65% of the $832,750 national conforming limit for one unit. You can check any county on HUD's FHA Mortgage Limits lookup. A listing that says Indianapolis does not, by itself, prove the county.

The insured mortgage is the lesser of that limit or a percentage of adjusted value. On a purchase, adjusted value is the lesser of the price minus inducements to purchase, or the property value (HUD Handbook 4000.1, updated August 12, 2026).

Watch the unit count. The handbook treats two units plus one accessory dwelling unit (ADU), or three plus one, as a three- to four-unit property. An ADU is a separate, smaller living unit with its own way in and out. If the appraiser counts one, the rent test can apply.

You have to live there

At least one borrower must occupy the property within 60 days of signing the security instrument, the mortgage signed at closing, and intend to stay at least one year (HUD Handbook 4000.1). A principal residence is the home you live in for most of the year, and you only get one. FHA will not insure an investment property, one you do not occupy, for an ordinary buyer.

If any borrower will not live there, the maximum loan-to-value ratio is 75%. Family members can sometimes reach 96.5%, but not on a two- to four-unit property. A parent who co-borrows but stays in their own home can turn a 3.5% down payment into a 25% one.

Down payment and credit score

The minimum required investment is 3.5% of adjusted value, so the maximum loan-to-value ratio (LTV) on a purchase is 96.5%. LTV compares the loan with the value used for the loan. Closing costs and lender fees sit on top.

That maximum needs a minimum decision credit score of 580 or higher. With three scores, FHA uses the middle one. With two different scores, it uses the lower one. A score from 500 to 579 caps LTV at 90%, and a score under 500 is not eligible. A buyer with no score can still reach maximum financing, but a person underwrites the file by hand.

Those are FHA's floors. A lender can add its own stricter rules, called overlays. These are the questions I'd have a buyer put to a lender before an offer on a 2-4 unit home:

1. What score and down payment do you require on this purchase, beyond FHA's minimums?
2. How will you count rent from the other units?
3. For three or four units, what rent and vacancy figures will you use in the self-sufficiency test?
4. How much cash do you want left after closing?

The rent test on 3 and 4 units

A two-unit home skips this test, called self-sufficiency. A three- or four-unit home does not. The lender takes the appraiser's fair market rent for every unit, including yours, and subtracts the greater of the appraiser's vacancy and maintenance estimate or 25% of that rent (HUD Handbook 4000.1). Principal, interest, taxes, and insurance (PITI), divided by what remains, may not exceed 100%. In plain terms, the net rent has to be at least as large as PITI. Job income does not fix a miss.

Hypothetical example: say the appraiser's rents for all four units add up to one monthly total, and the vacancy estimate is under 25%. The lender cuts 25%. If what remains is at least PITI, this made-up case passes. If not, it fails, even with strong wages. The taxes in that PITI depend partly on how the county treats the unit you live in, which the Marion County homestead guide walks through.

How a lender counts the rent

This is a separate calculation from the rent test. Rent from a two- to four-unit property may count as income, and rent from commercial space may not. With no rental history on the building since your last tax filing, the lender uses 75% of the lesser of the appraiser's fair market rent or the lease rent. The appraisal goes on Fannie Mae Form 1025, the Small Residential Income Property Appraisal Report, along with any prospective leases. The lender adds that net rent to your gross income and may not subtract it from the mortgage payment. If you already report the building on Schedule E, your tax history is used instead.

On a three- or four-unit loan, you also need reserves of three months of PITI after closing, in both automated and manual underwriting. A two-unit loan underwritten by hand needs one month. Reserves are liquid assets left after closing, and borrowed money does not count.

What FHA mortgage insurance costs

FHA's mortgage insurance premium (MIP) chart is Appendix 1.0 of the handbook, dated March 20, 2023, and still in the August 12, 2026 update. The upfront premium is 1.75% of the base loan amount, paid all in cash or all financed. A financed premium does not count against the county limit or the LTV cap, but it raises the balance you pay interest on.

On a term over 15 years, the annual premium uses a $726,200 base-loan breakpoint. At or under it, LTV above 95% costs 0.55% a year for the mortgage term, above 90% up to 95% costs 0.50% for the term, and 90% or less costs 0.50% for 11 years. Over it, LTV above 95% costs 0.75% a year for the term. A 3.5% down payment is 96.5% LTV, so the premium lasts the life of the loan. The two-unit cap of $693,050 sits under the breakpoint. A three- or four-unit loan can cross it. This is not a quote.

A conventional 5% down comparison

A conventional loan follows Fannie Mae or Freddie Mac rules instead, and FHA does not insure it. Fannie Mae's August 5, 2026 Eligibility Matrix allows a principal-residence purchase of a 2 to 4 unit home up to 95% LTV in Desktop Underwriter, its automated system, on a fixed-rate or adjustable-rate loan. That is 5% down. If a person underwrites the loan by hand, the cap drops to 85% for two units and 75% for three or four.

High-balance loans have lower caps, but that does not bite in Marion County, because its 2026 Fannie and Freddie limits sit at the national baseline: $832,750, $1,066,250, $1,288,800, and $1,601,750 for one through four units (HUD 2026 conforming limits file).

The tradeoffs, and what to skip

In FHA's favor: a down payment as low as 3.5% on up to four units, and rent from the other units may count toward qualifying. Against it: mortgage insurance for the life of the loan at that down payment, plus reserves and a rent test on three or four units. Then there is daily life. You live next to your tenants for at least a year, with shared walls, repair calls, and less privacy than a detached house.

Skip these:

• Rent estimates from listing sites. The appraisal is what counts.
• A plan that depends on a co-borrower who will not move in.
• FHA for a building you do not plan to live in.

A manageable next step

Once you own it, renting the other units brings city and state rules, covered in the rules before you rent a room in Indianapolis. To test whether living beside tenants fits your life, take the house-hacking quiz. It will not tell you that you qualify. If location is the first question, Find Your Place in Indy suggests neighborhoods to explore based on your priorities. To run your own numbers, Roots Realty has a house hack calculator and a look at what house hacking costs in Indianapolis in 2026.

To talk through a specific Marion County building, talk with me, and bring the unit count and whether you will really move in. I'm Kyle Hoffman, a REALTOR with Roots Realty Co., licensed in Indiana, and my story explains how I got here. I don't take loan applications, so a lender makes the call on any file.

Sources

• HUD Mortgagee Letter 2025-23: the 2026 FHA limits and the national floor.
• HUD 2026 FHA county limits file and file layout: Marion County at the floor, type S.
• HUD Handbook 4000.1, August 12, 2026 update: occupancy, down payment, credit score, co-borrowers, ADUs, the rent test, rental income, reserves, and mortgage insurance.
• Fannie Mae Eligibility Matrix, August 5, 2026: conventional LTV limits for 2-4 units.
• HUD 2026 conforming limits file: Marion County's Fannie Mae and Freddie Mac limits.

Last reviewed September 2026.

This is general information, not lending, tax or legal advice. A lender decides any loan, and a tax professional should review your return.