House hacking means buying a two- to four-unit home, living in one unit and renting the others. Because you live there, you can use an owner-occupant loan: FHA with 3.5% down, or a conventional loan with 5% down on a 2-4 unit home. Rent from the other units helps pay the mortgage. In Baltimore the hard parts are confirming the units are legal and getting every rented unit licensed.
It is one of the cheapest ways into real estate investing, and one of the easiest to get wrong if the “duplex” you buy was never permitted as one.
What counts as 2-4 units, and how to verify them
To a lender, a two- to four-unit property is one residential building with two, three or four separate dwelling units. Five or more is commercial lending.
In Baltimore City, the number of units a building has is a zoning question, not a listing description. Plenty of rowhomes have been split into apartments over the years. Some of those conversions were never approved.
What the code says:
- Converting a single-family dwelling to a multi-family dwelling is allowed only in the R-7, R-8, R-9 and R-10 districts, and in R-7 and R-8 it also needs conditional-use approval by ordinance of the Mayor and City Council (Zoning Code 9-701, as of October 2026).
- A use permit is the document that certifies a building’s use “complies with the provisions of this Code” and is its authorized use (Zoning Code 5-702).
Before you write an offer on a Baltimore multi-unit, ask for the use and occupancy permit that shows the unit count. Check the permit history and ask your title company to confirm. If the listing says “three units” and the permit says one, the lender may treat it as a single-family home with no rental income, and you could be stuck with apartments you can’t legally rent.
FHA vs conventional: down payment and occupancy
| FHA | Conventional (Fannie Mae) | |
|---|---|---|
| Units | 1-4 | 1-4 |
| Minimum down payment | 3.5% of the adjusted value | 5% on a 2-4 unit principal residence (95% max LTV) |
| Occupancy | Move in within 60 days, intend to stay at least one year | Must be your principal residence |
| 3-4 unit extra test | Self-sufficiency test (below) | Lender’s own rental income rules |
| Reserves | One month’s payment for 1-2 units, three months for 3-4 units (manual underwriting) | Set by the loan’s underwriting |
The FHA figures come from HUD Handbook 4000.1 (the 3.5% Minimum Required Investment and the 60-day occupancy rule) and Mortgagee Letter 2023-17 (reserves). The conventional figure is from Fannie Mae’s Eligibility Matrix dated August 5, 2026, which allows 95% loan-to-value on a 2-4 unit principal residence purchase through Desktop Underwriter; the matrix notes exceptions, including for high-balance loans. FHA also charges mortgage insurance, and FHA loan amounts are capped by county and unit count, so check HUD’s FHA mortgage limits for Baltimore.
The self-sufficiency test for three and four units
FHA adds a test for three- and four-unit homes. The appraiser estimates fair market rent for every unit, including the one you will live in. The lender subtracts the greater of the appraiser’s vacancy and maintenance estimate or 25%. What’s left is the net self-sufficiency rental income, and the full monthly payment (principal, interest, taxes and insurance) divided by it may not exceed 100% (HUD 4000.1).
A quick example with made-up rents: four units at $1,300 each is $5,200 a month. Minus 25% leaves $3,900. Your total monthly payment has to be $3,900 or less. Plenty of fourplexes fail this test at today’s rates, and that’s useful information before you fall for one.
Two-unit homes are not subject to this test.
Rental income lenders count
Lenders don’t count every dollar of rent. Under HUD Mortgagee Letter 2023-17, if you have no history of rental income from the property, an FHA lender uses 75% of the lesser of the appraiser’s fair market rent or the rent in the lease. For a 2-4 unit home, the lender documents that rent with a small residential income property appraisal and any existing leases.
So a unit leased at $1,500 with an appraiser’s market rent of $1,400 counts as $1,050 a month toward qualifying.
Conventional loans have their own rental income rules. Ask your lender to run your numbers with the rent counted the way they will actually count it. If you’re also looking at Maryland down payment help, our Maryland Mortgage Program guide covers what the state offers.
This is general information, not lending, tax or legal advice. Talk to a lender, CPA or attorney about your own situation.
Licensing every rental unit
Living in one unit doesn’t exempt the others. In Baltimore City:
- Non-owner-occupied 1-2 unit properties pay a $30 per unit annual registration fee, and multi-family dwellings $35 per unit (City Code Art. 13, 4-8). Ask DHCD how your property is classified when you live in one unit.
- A rental license requires a passing inspection by a Maryland-licensed home inspector registered with DHCD, lead certification for each unit, and no open code violations (DHCD).
- Since January 1, 2026, licenses run two years and don’t transfer to a buyer; a new owner needs a license within 60 days of the transfer (Strengthening Renters’ Safety Act).
- Rented units built before 1978 must be registered with MDE and need a lead inspection certificate at each change of tenant (MDE).
The step-by-step is in our post on the Baltimore City rental license, and the landlord-tenant guide covers leases and deposits.
A worked example
This is an illustration with stated assumptions, not a quote or a forecast.
- Price: $250,000 for a legal two-unit home in Baltimore City
- FHA loan, 3.5% down: $8,750 down, base loan $241,250
- Rate: 7.25% for 30 years (assumed; Freddie Mac’s PMMS average was 7.32% for the week of October 22, 2026)
- Property tax: $250,000 x $2.36 per $100 (city plus state, from the SDAT 2026-2027 rate table) = $5,900 a year
- Insurance: $150 a month (placeholder; get a quote)
- Rent on the second unit: $1,400 a month (assumed)
| Monthly | Amount |
|---|---|
| Principal and interest | $1,646 |
| Property tax | $492 |
| Insurance | $150 |
| Payment before FHA mortgage insurance | $2,288 |
| Rent from the other unit | -$1,400 |
| Your share before mortgage insurance, repairs and vacancy | $888 |
Add FHA mortgage insurance, a repair budget and a month of vacancy now and then, and your real cost is higher than $888. It can still be far less than renting a comparable home. For qualifying, the lender would count about $1,050 of that $1,400 (75%).
Moving out later
FHA requires you to move in within 60 days and intend to live there for at least a year (HUD 4000.1). After that, many owners move out, keep the loan and rent the unit they lived in. Before you do:
- Get a rental license for your former unit, plus lead certification if the building is pre-1978.
- Switch your insurance to a landlord policy.
- Expect your tax bill to change if you lose owner-occupied tax credits.
- Decide who manages it. SW Property Management handles leasing and maintenance, and a rent analysis tells you what your unit should rent for.
FHA generally won’t insure a second home as your principal residence while you hold the first, with limited exceptions. Ask your lender about your next purchase before you plan it.
Bottom line
A Baltimore house hack works when the units are legal, the loan is an owner-occupant loan, and the rent you count is the rent a lender will count. Verify the unit count with the use and occupancy permit, budget for the rental license, inspection and lead work on every rented unit, and run the self-sufficiency test early on three- and four-unit homes. Then look at Baltimore homes for sale with those numbers in hand, or start your search with us.
Sources
- HUD, Handbook 4000.1, FHA Single Family Housing Policy (checked October 26, 2026)
- HUD, Mortgagee Letter 2023-17, rental income (checked October 26, 2026)
- HUD, FHA mortgage limits lookup (checked October 26, 2026)
- Fannie Mae, Eligibility Matrix, August 5, 2026 (checked October 26, 2026)
- Freddie Mac, Primary Mortgage Market Survey, week of October 22, 2026 (checked October 26, 2026)
- Baltimore City Code, Zoning 9-701 and Zoning 5-702 (checked October 26, 2026)
- Baltimore City Code, Article 13, 4-8 (checked October 26, 2026)
- Baltimore City DHCD, Property registration and rental licensing and Strengthening Renters’ Safety Act (checked October 26, 2026)
- Maryland Department of the Environment, Rental owners (checked October 26, 2026)
- Maryland SDAT, Tax Rates 2026-2027 (checked October 26, 2026)