Thinking about buying a 2- to 4‑unit in Peabody so you can live in one unit and rent the others? The right financing can make that plan work or stall it. You want a clear path to approval, predictable payments, and a smart long‑term cost. In this guide, you’ll see how FHA and conventional loans compare for multi‑unit purchases in Peabody, how lenders count rental income, what reserves you may need, and the local checks that can affect your loan. Let’s dive in.
FHA vs. conventional at a glance
FHA helps lower down payment buyers who will live in one unit. It can be easier on credit and cash to close, but mortgage insurance is required and property standards are strict.
Conventional loans include Fannie Mae, Freddie Mac, and some portfolio products. They offer more flexibility, including non‑owner‑occupied options, but down payment, reserves, and credit expectations are usually higher for multi‑units.
Key decision drivers:
- How much you have for a down payment and your credit profile.
- Whether you will occupy a unit right away.
- How much of the rents you can use to qualify.
- Whether you meet reserve requirements and your target monthly payment.
- Peabody rents compared with the projected mortgage, taxes, and insurance.
Loan limits and eligibility
Two sets of limits apply. Conforming limits are set by FHFA and increase with unit count. FHA limits are set by HUD and also rise with unit count. Limits are county specific and change each year, so do not rely on last year’s numbers.
- To confirm conforming limits, check the current FHFA conforming loan limits for Essex County using the FHFA map tool.
- To confirm FHA limits, use HUD’s FHA mortgage limits search.
If your purchase price requires a loan above the applicable limit, you will need a larger down payment to bring the loan within the limit or a different product. Since 2‑ to 4‑unit limits are higher than for single‑family homes, you may qualify for a multi‑unit even when a single‑unit loan would fall short.
Owner‑occupant rules to know
- FHA requires you to occupy one unit as your primary residence, typically within 60 days of closing, and remain an owner‑occupant for at least 12 months. FHA does not insure non‑owner‑occupied 2‑ to 4‑unit purchases.
- Conventional loans are available for both primary residence and investment purchases. Underwriting gets stricter as unit count rises or when the property is non‑owner‑occupied.
For specific rule language, see the Fannie Mae Selling Guide and the Freddie Mac Seller/Servicer Guide.
How lenders count rental income
Lenders will let you use rental income from the other units to help you qualify, but they discount it to account for vacancy and expenses. A common approach is to use 75 percent of the gross rent.
What documents you’ll need:
- If there are existing tenants, signed leases are best. Underwriters will review these.
- If units are vacant or you plan to place new tenants after closing, the appraiser’s rent schedule or market rent analysis supports projected rents.
How the income is applied:
- Lenders typically count 75 percent of market or lease rents toward qualifying. This can increase your qualifying income and help offset the property’s PITI.
- FHA generally permits 75 percent of projected rent for owner‑occupied 2‑ to 4‑unit purchases when supported by leases or appraiser rents. Conventional lenders follow similar math but documentation can differ.
Expect overlays:
- If you rely on projected rents without current leases, be ready for more scrutiny. Some lenders test whether the property is close to self‑sustaining, meaning rents reasonably support the payment.
Down payment, reserves, and mortgage insurance
Down payment:
- FHA typically allows a lower minimum down payment for eligible credit profiles, which helps you get in with less cash.
- Conventional loans for multi‑units usually require more than single‑family minimums. Two‑unit primary residences may allow lower down payments than 3‑ or 4‑unit homes, but many lenders require 15 to 25 percent depending on the scenario.
Reserves:
- Reserves are funds left over after closing, often measured in months of PITI. FHA program rules do not explicitly require large reserves for owner‑occupied purchases, but many lenders still want to see some reserves for multi‑units.
- Conventional guidelines and overlays commonly increase reserves as unit count rises. Owner‑occupied 2‑units may require a couple of months; 3‑ to 4‑units and non‑owner‑occupied purchases often require more. Each lender’s policy can differ.
Mortgage insurance:
- FHA loans have an upfront mortgage insurance premium and an annual premium. With smaller down payments, the annual premium typically lasts for many years and can apply for the life of the loan.
- Conventional private mortgage insurance is usually lower for strong credit and can be cancelled once you reach certain equity thresholds, reducing long‑term cost.
The tradeoff: FHA often wins on cash to close and credit flexibility. Conventional can win on total long‑term cost if you can bring a larger down payment and have stronger credit.
Appraisal and occupancy realities
Multi‑unit appraisals include an income analysis and an appraiser’s rent schedule. The appraiser will compare other multi‑unit sales and consider condition. In Peabody, many buildings are older New England stock, so deferred maintenance can matter.
- If the appraiser’s market rent is lower than you expected, the lender will use the lower figure unless you have a current lease to support higher rent. That can affect how much rental income counts for qualifying.
- FHA appraisals include strict property condition standards. Repairs may be required before closing.
- For FHA, plan your move‑in timeline. You must occupy one unit within the required timeframe and remain an owner‑occupant for at least 12 months.
Peabody checks that affect approval and cost
Local rules can affect both underwriting and your operating costs. Before you commit, confirm the following with the City of Peabody or your attorney.
- Rental registration and inspections: Many Massachusetts cities require registration or inspection of rental units. Check the City of Peabody website for current requirements.
- Zoning and permitted units: Verify that every unit is legal and permitted, with a certificate of occupancy where applicable. Unpermitted units can derail financing and insurance.
- Lead paint: For homes built before 1978, federal lead disclosure applies, and Massachusetts has additional lead laws. Plan for compliance if you will rent to families.
- Flood zone: Use the FEMA Flood Map Service Center to see if flood insurance will be required. Flood premiums impact your monthly budget.
Cost planning: taxes, insurance, and realistic rents
Your monthly payment includes principal, interest, taxes, and insurance. In Peabody, property taxes and multi‑unit insurance can add more than you expect, so price them early.
- Property taxes: Review the assessor’s figures for any property you are considering. This feeds directly into your PITI.
- Insurance: Multi‑unit policies can be higher than single‑family policies. Shop coverage early and factor it into your debt‑to‑income ratio.
- Vacancy and maintenance: Lenders already discount rents by about 25 percent to allow for vacancy and expenses. Build your own reserve for repairs and turnover so you are not surprised in year one.
Your action plan to get lender‑ready
Verify limits. Confirm Essex County’s current conforming limits with FHFA and FHA limits with HUD before you set your price range.
Talk to two lenders early. Speak with an FHA‑approved lender and a conventional lender experienced in 2‑ to 4‑unit loans. If you are considering non‑owner‑occupied options, include a lender that offers portfolio products.
Gather documents. Pull your credit, line up proof of assets, and collect leases if units are occupied. If units are vacant, ask a property manager for a rent opinion while you wait for the appraiser’s schedule.
Understand rent support. Ask your lender how they will document and apply rental income for qualifying on your file.
Check local rules. Confirm Peabody rental registration, inspection, and zoning status before you fall in love with a building.
Get insurance quotes and tax estimates. Use those numbers in your monthly payment model.
Compare long‑term cost. Weigh FHA’s lower upfront cash against ongoing mortgage insurance, and conventional’s higher down payment against cancellable PMI.
For additional consumer guidance and to understand how lenders may apply overlays, visit the Massachusetts Division of Banks.
Which path fits you?
- Choose FHA if you need a lower down payment, plan to live in one unit, and want flexibility on credit. Expect mortgage insurance to increase your monthly payment for many years.
- Choose conventional if you can bring a larger down payment and have stronger credit. You may benefit from lower, cancellable PMI and broader product options, including non‑owner‑occupied loan types.
No two files are the same. Your credit, income, reserves, appraised value, and appraiser rent conclusions will drive the final call.
Ready to compare your options?
If you want a clear, numbers‑first view of what you can buy in Peabody, let’s run the math on loan limits, rents, reserves, and total monthly cost so you can move forward with confidence. Connect with Unknown Company to Request a complimentary market consultation.
FAQs
What are the current loan limits for a 2‑ to 4‑unit in Essex County?
- Check the FHFA conforming loan limits for Essex County and HUD’s FHA mortgage limits search for FHA; both update annually and vary by unit count.
How much rental income can I use to qualify on a 3‑unit in Peabody?
- Lenders commonly use 75 percent of market or lease rents when you will occupy one unit, supported by the appraiser’s rent schedule or signed leases.
Do I need cash reserves to buy a 2‑ to 4‑unit with a conventional loan?
- Many lenders require reserves, often measured in months of PITI, with higher amounts for 3‑ to 4‑unit and non‑owner‑occupied purchases; policies vary by lender.
How does FHA occupancy work for house hacking in Peabody?
- You must occupy one unit as your primary residence, typically within 60 days of closing, and remain an owner‑occupant for at least 12 months under FHA rules.
What if the appraised market rent is lower than what I expect?
- Underwriters use the appraiser’s rent schedule or current leases; if rents come in lower, less income may be counted, which can affect your qualifying and budget.
