Money and Risk | Financing

Financing a 2 to 4 Unit Home in California: FHA, Fannie Mae, Freddie Mac

FHA, Fannie Mae and Freddie Mac each publish rules for homes with two to four units. This page explains what lenders look at: the 2026 loan limits for each unit count, the Federal Housing Administration (FHA) rules, how Fannie Mae and Freddie Mac count rent from the other units, and how each one treats accessory dwelling units (ADUs). It quotes the agencies' own guides. Loan terms, rates and lender rules change, and they differ between lenders, so confirm every number with a lender before you sign a purchase contract. VanPlex is a Vancouver company and does not lend in the United States.

2026 Loan Limits by Unit Count

A conforming loan is one that Fannie Mae or Freddie Mac can buy from the lender. The Federal Housing Finance Agency (FHFA) sets the maximum size each year, with higher limits for more units and for high-cost counties. For 2026, FHFA says "In most of the United States, the 2026 CLL value for one-unit properties will be $832,750, an increase of $26,250 from 2025," and "The new ceiling loan limit for one-unit properties will be $1,249,125, which is 150 percent of $832,750." CLL means conforming loan limit.

Source: FHFA 2026 county loan limit file and FHFA 2026 announcement.

The limit grows with each unit. In Los Angeles County, a four-unit loan can be $1,153,500 larger than a one-unit loan ($2,402,625 minus $1,249,125). A loan above the limit for your county and unit count is outside the conforming programs, so check your county in the FHFA file before you compare properties.

FHA Loans for Two to Four Units

FHA insures mortgages under the Department of Housing and Urban Development (HUD). Its rules are in the Single Family Housing Policy Handbook 4000.1. The version read for this page was published on August 12, 2026. FHA defines a two-unit property as "a Single Family residential Property with two individual Dwelling Units." A three-to-four-unit property can be three or four dwellings, or "two individual Dwelling Units and one ADU or three individual Dwelling Units and one ADU."

For a purchase, the handbook says: "For purchase transactions, the maximum LTV is 96.5 percent of the Adjusted Value." LTV, or loan-to-value, is the loan amount divided by the property value. At 96.5 percent, the borrower's Minimum Required Investment is 3.5 percent. Credit scores matter: a score at or above 580 is "eligible for maximum financing," and a score from 500 to 579 is "limited to a maximum LTV of 90%."

When there is no rental history, FHA counts rent this way: "the Mortgagee must use 75 percent of the lesser of: fair market rent reported by the Appraiser; or the rent reflected in the lease or other rental agreement." The mortgagee is the lender. For a one-unit property with an ADU, "The amount of the Rental Income from an ADU used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower."

The FHA Self-Sufficiency Test

Three- and four-unit properties face one more FHA test. "The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four-unit Properties." PITI is the monthly principal, interest, taxes and insurance.

The rental income side is built from the appraisal. Start with the appraiser's fair market rent for all units, including the one you will live in. Subtract the greater of two amounts: the appraiser's estimate for vacancy and maintenance, or 25 percent. What remains is the net self-sufficiency rental income. Your PITI must be equal to or less than that figure. Because your own unit's rent is in the calculation, the property has to support its payment as if every unit were rented.

The lender must also check your savings: "The Mortgagee must verify and document Reserves equivalent to three months' PITI after closing for three- to four-unit Properties." Both rules are written for three- and four-unit properties.

How Fannie Mae Counts Rent

Fannie Mae's Selling Guide B3-3.8-02, dated September 2, 2026, allows rental income from the subject property on a two- to four-unit principal residence. On a purchase, the lender must "multiply monthly gross rent by 75% for the net rental income amount, then subtract the PITIA of the subject property from the net rental income." PITIA is principal, interest, taxes, insurance and association dues.

Experience changes the result. With 12 months or more of experience managing rental property, a positive amount can count in full as income. With less: "When the borrower has less than 12 months of rental property management experience if ANRI is positive, the lender may use the rental income to offset the PITIA only." ANRI is the adjusted net rental income. In plain terms, a first-time landlord can use the rent to cover the property's own payment but not to support other debts.

Fannie Mae publishes its maximum loan-to-value for a two- to four-unit principal residence in its Eligibility Matrix. Ask a lender for the current figure and the down payment it means for your purchase.

ADUs: Where the Lenders Disagree

California law lets single-family and multifamily lots add ADUs, and the three loan programs treat those ADUs differently. The table compares their rules.

Sources: HUD Handbook 4000.1, Fannie Mae B3-3.8-02, Fannie Mae B2-3-04 and the Freddie Mac ADU fact sheet.

Fannie Mae's Selling Guide B2-3-04 is the strictest: "Only one ADU is permitted on the parcel of the primary one-unit dwelling. ADUs are not permitted with a two- to four-unit dwelling." It also says that whether a property is one unit plus an ADU or a two- to four-unit property depends on features such as separate meters, a separate address and whether the unit can legally be rented. So a house with an ADU that has its own address and meter may be treated as a duplex.

Freddie Mac's ADU fact sheet (February 2026) says "One ADU is allowed on 1-, 2- and 3-unit properties." When ADU rent on a one-unit home is used to qualify, the loan must be a purchase or no cash-out refinance, lease income counts at no more than 75 percent, "Qualifying rental income cannot exceed 30% of total income used to qualify," the appraisal needs at least three comparable rentals including one rented ADU and at least one comparable sale with an ADU, and "Rental income from an illegal ADU may not be used to qualify." A no cash-out or limited cash-out refinance is one that replaces the loan without paying cash to the borrower beyond the limits the guide sets. On a purchase, at least one borrower takes a landlord education course unless they have a year of investment property or ADU rental management experience.

Building or Legalizing an ADU

HCD's ADU Handbook lists FHA, Freddie Mac and Fannie Mae ADU programs and adds: "Note that the 203(k) Rehabilitation loan may only be used to construct an attached ADU." The 203(k) is FHA's rehabilitation loan.

Because Freddie Mac will not count rent from an illegal ADU, legalizing an existing unit can matter for your loan. Under Government Code 66311.7, a city "shall not deny a permit for an unpermitted accessory dwelling unit or an unpermitted junior accessory dwelling unit that was constructed before January 1, 2020" only because it breaks building standards or ADU rules, unless a fix is needed to meet health and safety standards.

Selling or Financing Units Separately

Two state rules affect loans on units you plan to sell. If a city opts in to selling ADUs as condominiums under Government Code 66342, every lienholder, such as the bank that holds your mortgage, must consent in writing, and "A lienholder may refuse to give consent." Ask your lender before you design for separate sale. And under Government Code 66499.41(e), lots created by an SB 684 small-lot subdivision may not be sold, leased or financed separately until each has a finished home or meets another listed condition, unless the city allows it. SB 9 (2021) lot splits create separate lots with no such statutory hold.

Where to Go Next

Related on VanPlex: the ADU law page and the impact fees page.

Frequently Asked Questions

Official sources (checked October 2026)