Key Takeaways
- Multi-unit homes often require a larger down payment.
- Buyers may live in one unit and rent others for income.
- 2-4 unit homes may require higher credit scores for approval.
- Homes with 5+ units need commercial financing.
Article Summary
A multi-unit home is a residential building divided into multiple housing units, each with a living space, kitchen, and bathroom.
Multi-Unit Home: Explained in Plain English
Multi-unit homes are residential buildings segmented into distinct living spaces to house multiple households. Each residence in a multi-unit must have a kitchen, bathroom, living area, and its own entrance. Units may be side-by-side or stacked vertically and function independently.
Mortgage lenders underwrite multi-unit homes differently from 1-unit homes such as detached homes and condominiums. Typically, but not always, multi-unit mortgages require larger down payments and a higher credit score to get approved. They may also require more reserves in the bank.
Homes with five or more units are considered commercial properties and are not eligible for residential mortgage financing.
A mortgage lender will refer to multi-unit homes as 2-unit homes, 3-unit homes, and 4-unit homes. A first-time home buyer, however, may hear multi-unit homes referred to by different names depending on the region where they are purchasing property.
2-Unit Homes
Fannie Mae and Freddie Mac categorize these as two-unit properties or 2-family dwellings. In most zoning codes, they fall under residential multi-family (R-2), distinguishing them from single-family homes (R-1) and larger complexes.
| Colloquial Term | Region | Description |
|---|---|---|
| Duplex | Nationwide | Standard term for a two-unit home |
| Double | Northeast | Used in NY and New England; same as two-family |
| Twin Home | Midwest | Two units share a wall, deeded separately |
| Side-by-Side | Midwest | Each unit has its own side and entrance |
| Up-and-Down | Northeast & Midwest | Stacked units, not side-by-side |
| Chicago Coach House | Chicago | Small back building, sometimes split into two units |
3-Unit Homes
These are classified as three-unit properties (or 3-family dwellings) by Fannie Mae. Local zoning often designates them as multi-family residential, though in older cities they may pre-date zoning rules entirely.
| Colloquial Term | Region | Description |
|---|---|---|
| Triplex | Nationwide | Three-unit building |
| Three-Flat | Chicago | Three-story, one unit per floor |
| Triple Decker | New England | Three-story, wood-frame |
| Three-Family | Northeast | Another term for triplex in NY/NJ/Boston |
| Three-Unit Walk-Up | Urban Midwest & East | Stacked units with shared stairs |
| Row Triplex | Philly, Baltimore | Row house split into three units |
4-Unit Homes
For lending purposes, these are the largest type of residential property still classified as residential by Fannie Mae/Freddie Mac (5+ units = commercial). In zoning, they typically fall into low-rise multi-family categories.
| Colloquial Term | Region | Description |
|---|---|---|
| Fourplex / Quadplex | Nationwide | Standard national terms for four-unit homes |
| Four-Flat | Chicago | Four stacked units, one per floor |
| Four-Family | Northeast | Listing term for four-unit homes |
| Box Building | Midwest | Brick building split into four units |
| Quadruple Decker | New England | Four-story version of a triple-decker |
| Garden Fourplex | West Coast / Southwest | Four units around a courtyard or garden |
| Stacked Four | Zoning jargon | Four units arranged vertically |
Multi-Unit Home: A Real World Example
Imagine a first-time home buyer facing high real estate prices in a medium-sized city. To make living in the city more affordable, the buyer decides to "house hack" by purchasing a 3-unit home, living in one unit and renting out the other two.
The rental income from the two extra units covers the majority of the home's overall monthly PITI and home maintenance costs. It also provides extra cash for making urgent repairs and adding curb appeal.
The buyer did not initially plan to purchase a multi-unit home, but it turned out to be the best way to stop renting, start owning, and gain valuable real estate experience.
Common Questions About Multi-Unit Homes
Get answers to frequently asked questions about multi-unit homes, including financing, insurance, and investment benefits.
What are the benefits of buying a multi-unit home as a first-time buyer?
Multi-unit homes offer the opportunity to generate rental income, which can help offset mortgage costs. This can make homeownership more affordable and provide a valuable investment opportunity.
Can I qualify for a mortgage on a multi-unit home with the same terms as a single-family home?
Mortgages for multi-unit homes often have different requirements than those for single-family homes. Lenders may require a larger down payment and have stricter borrower qualifications.
Is it more expensive to insure a multi-unit home compared to a single-family home?
Insurance costs for multi-unit homes can be higher due to the increased liability and potential for more frequent claims associated with having tenants.
How does financing a multi-unit home differ from a single-family home?
Financing a multi-unit home can differ in loan requirements, interest rates, and down payment percentages. Lenders often view multi-unit properties as higher risk, which may lead to stricter lending criteria and sometimes higher interest rates compared to single-family homes.
Can each unit in a multi-unit home be sold separately?
Whether units in a multi-unit home can be sold separately depends on how the property is legally structured. If the units are classified as condominiums, each unit can typically be sold individually. However, if the property is a standard multi-unit home like a duplex, the entire building is usually sold as a single entity.
What are the tax implications of owning a multi-unit home?
Owning a multi-unit home can have unique tax implications, particularly if units are rented out. Rental income must be reported, but owners can deduct certain expenses like maintenance, repairs, and property taxes. The specific tax implications can vary, so owners should consult a tax professional.
How is a multi-unit home different from an apartment complex?
A multi-unit home typically consists of a smaller number of units (like duplexes or triplexes) and is often owned by a single entity or individual. An apartment complex generally has many units and is designed for larger-scale residential occupancy, often managed by a property management company.
