Buying my first multifamily in Chicago

Member since 2025 · 14 posts · 8 votes

I am planning on purchasing a 3 to 4 unit multifamily in Chicago and house hack. I am aware of the FHA and the 5% down conventional loan. With the current interest rates and high home prices in Chicago I doubt I can pass the self sufficiency test for FHA. I spoke to one lender and he advised on having 6 month of reserves if I'm using the conventional loan. It is a lot of cash i didn't anticipate. I was working on collecting 5% for down payment and 3% for closing. I am not sure if I should wait to collect 6 months of reserves or buy using a FHA with the current capital I got. Is there any other loans that would fit my situation ?
Please share any tips and advice on getting started! Thanks

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Brie SchmidtBusiness Member

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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

@Rochelle Fernando - Correct, FHA is nearly impossible to do on 3-4 units on the north side of Chicago. You can still do a 2 unit FHA but 3-4 you will need to do 5% down conventional. Every lender will require 6 months of reserves and it can be in a 401k or retirement account, as the money doesn't need to be liquid. Another hack is if your parents have cash have them add you to the account so you can show your name on the bank statements (for at least 3 months) and then you can use that to fulfil the requirement.

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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
1y
@Rochelle Fernando - Correct, FHA is nearly impossible to do on 3-4 units on the north side of Chicago. You can still do a 2 unit FHA but 3-4 you will need to do 5% down conventional. Every lender will require 6 months of reserves and it can be in a 401k or retirement account, as the money doesn't need to be liquid. Another hack is if your parents have cash have them add you to the account so you can show your name on the bank statements (for at least 3 months) and then you can use that to fulfil the requirement.
Podcast Guest on Show #132
Second City Real Estate4.821 Reviews
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5 Reply
- Jennie Berger
  Lender · Chicago IL · Member since 2020 · 357 posts · 229 votes
  1y
  Quote from @Brie Schmidt:
  
  @Rochelle Fernando - Correct, FHA is nearly impossible to do on 3-4 units on the north side of Chicago. You can still do a 2 unit FHA but 3-4 you will need to do 5% down conventional. Every lender will require 6 months of reserves and it can be in a 401k or retirement account, as the money doesn't need to be liquid. Another hack is if your parents have cash have them add you to the account so you can show your name on the bank statements (for at least 3 months) and then you can use that to fulfil the requirement.
  
  Great suggestions @Brie Schmidt! I didn't know we could use retirement accounts as that 6 months of reserves - game changer!
  0 Reply
- Brie SchmidtBusiness Member
  Moderator
  Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
  1y
  Quote from @Jennie Berger:
  
  Quote from @Brie Schmidt:
  
  @Rochelle Fernando - Correct, FHA is nearly impossible to do on 3-4 units on the north side of Chicago. You can still do a 2 unit FHA but 3-4 you will need to do 5% down conventional. Every lender will require 6 months of reserves and it can be in a 401k or retirement account, as the money doesn't need to be liquid. Another hack is if your parents have cash have them add you to the account so you can show your name on the bank statements (for at least 3 months) and then you can use that to fulfil the requirement.
  
  Great suggestions @Brie Schmidt! I didn't know we could use retirement accounts as that 6 months of reserves - game changer!
  
  Yes! They will count a percentage of it, I think 70%
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  Second City Real Estate4.821 Reviews
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Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
1y
@Rochelle Fernando
Definitely go for the 5% down conventional loan if you can, particularly if you're going for a legal 3-4 unit property. FHA can work on a legal 2-flat with finished attic or basement unit but it will need to be deconverted for the appraisal. If you have some cash you can put toward making cosmetic improvements to the unit (paint, flooring, kitchen, bath updates, in-unit laundry) that will boost your rents and make your cash flow better.
3 Reply
Eudith VacioPro Member
Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
1y
Hey @Rochelle Fernando 👋🏽
where in Chicago are you looking to purchase? 3 to 4 unit multifamily buildings are gems. There tends to be way more inventory now and there are definitely more people selling right now, but fall / winter is also an opportune time to buy because that's when most people come of the market and demand drops, which means better deals and sellers are more willing to negotiate!
3 Reply
Jack Matthias
Lender · Chicago · Member since 2023 · 176 posts · 70 votes
1y
No 3-4 unit will pass the FHA self sustainability test currently. There is no way of getting around the 6 months reserves for conventional or FHA. As others have mentioned you can 401k's or investment accounts for the 6 months. May be better off doing FHA 3.5% down on a 2 unit and save the extra 1.5% for reserves not to mention the listing price will also be less.
1 Reply
Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
1y
i would generally say it's better to put less down. As others have said, there's no way around it. There are ways to reduce the cash out of pocket at close like seller concessions, closing early in the month, and higher real estate tax prorations.
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Tj FlorosPro Member
Real Estate Agent · Chicago · Member since 2025 · 95 posts · 74 votes
1y
Quote from @Rochelle Fernando:

I am planning on purchasing a 3 to 4 unit multifamily in Chicago and house hack. I am aware of the FHA and the 5% down conventional loan. With the current interest rates and high home prices in Chicago I doubt I can pass the self sufficiency test for FHA. I spoke to one lender and he advised on having 6 month of reserves if I'm using the conventional loan. It is a lot of cash i didn't anticipate. I was working on collecting 5% for down payment and 3% for closing. I am not sure if I should wait to collect 6 months of reserves or buy using a FHA with the current capital I got. Is there any other loans that would fit my situation ?
Please share any tips and advice on getting started! Thanks

Everyone has pretty much hit the nail on the head and you have got some really good advice/ tips & tricks. When going to buy you should ask your agent about seller credits that MAY help your up front money down with some closing credits and prorated taxes meaning you could bring less money into the deal then you might have first thought.
[email protected]
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Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
1y
First off - congrats @Rochelle Fernando - 95% of people will never even get to the spot you are currently at.

Sounds like you have 2 separate issues going on though 1. Passing the self-sufficiency test 2. Having enough reserves

1. If you wanted to consider buying a 2-unit that doesn't require you to meet the self-sufficiency test.

2. You should do what you feel comfortable with. Every investor has a different risk tolerance...if you have no potential reserves, then that is not a good situation to be in. I don't keep reserves per say, but I have a HELOC that has available cash on it.

Is there a specific part of Chicago you want to buy in? Make sure you work with someone like @Brie Schmidt or @Paul De Luca both rockstar agents in the house hacking game!
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2 Reply
Rochelle Fernando
OP
Member since 2025 · 14 posts · 8 votes
1y
Thanks everyone for the information. I don't have a specific neighborhood in mind, but prefer safe and higher rental income generating neighborhoods. If I am purchasing a duplex do I still need reserves? Please recommend good lenders who work with multi family housing in Chicago. Thanks!
1 Reply
- Tj FlorosPro Member
  Real Estate Agent · Chicago · Member since 2025 · 95 posts · 74 votes
  1y
  Quote from @Rochelle Fernando:
  
  Thanks everyone for the information. I don't have a specific neighborhood in mind, but prefer safe and higher rental income generating neighborhoods. If I am purchasing a duplex do I still need reserves? Please recommend good lenders who work with multi family housing in Chicago. Thanks!
  
  Ill send you a DM with some lenders i have used on my own deals and some I recommend to my clients. The reserves will depend on what loan program you are using, a lender will be better able to help you on that.
  [email protected]
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David Bovyn
Realtor · Member since 2025 · 26 posts · 7 votes
1y
Happy to share a couple of lenders via DM. I agree with Jack's comment regarding considering a 2 unit and keeping the 1.5% for reserves. That way your nice and comfy, less stressful for your first.
0 Reply
Eudith VacioPro Member
Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
1y
Hey @Rochelle Fernando - yes you definitely need reserves if you're planning on purchasing a multi-family buiding, especially if you're putting less than 20% as a down payment. I'll DM you some of my favorite lenders!
0 Reply
Jack Matthias
Lender · Chicago · Member since 2023 · 176 posts · 70 votes
1y
Hi Rochelle- You will still need reserves on a 2 unit property.
0 Reply
Aileen Santos
New to Real Estate · Chicago · Member since 2024 · 1 post · 0 votes
1y
Hi Rochelle! I live in the northern suburbs of Chicago and also looking for my first small MF deal. Would love to connect!
0 Reply
- Rochelle Fernando
  OP
  Member since 2025 · 14 posts · 8 votes
  1y
  Quote from @Aileen Santos:
  
  Hi Rochelle! I live in the northern suburbs of Chicago and also looking for my first small MF deal. Would love to connect!
  
  Ofcourse!
  0 Reply
Lee Burns
Investor · Chicago, IL · Member since 2018 · 327 posts · 155 votes
1y
Hi Rochelle - is your primary goal to specifically purchase a 3 to 4 unit, check the milestone off your list for owning a property, or simply to invest in real estate? I'm expanding my footprint in South Shore and Maywood and am happy to connect if you'd like to send me a DM
1 Reply
Micah White
Real Estate Coach · Chicago, IL · Member since 2020 · 171 posts · 64 votes
1y
Hey! You’re definitely thinking through some important details here, which is great. The reserve requirements on conventional loans can be a surprise for many first-time multifamily buyers, especially with today’s higher interest rates and prices.

If you feel the conventional loan reserves are too steep right now, FHA can still be a solid option, especially since it only requires 3.5% down and has more flexible qualification standards. Just keep in mind the FHA mortgage insurance premiums, which add to your monthly costs.

Other options you might consider:
- VA loans, if you qualify, offer zero down and often don’t require reserves.
- Portfolio lenders or local credit unions sometimes have more flexible requirements for multifamily properties.
- Community lending programs or down payment assistance programs in Illinois might be available depending on the neighborhood.
- Some investors even combine FHA loans with gift funds or partnerships to cover reserves or closing costs.
In any case, focusing on building a strong overall financial profile and a clear budget for reserves and ongoing expenses will put you in a better position to move quickly when the right deal appears.

If you want to talk through loan options, deal underwriting, or timing your first purchase, I’ve worked through these scenarios with other house hackers in Chicago and would be happy to share what I’ve learned.
1 Reply
Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
1y
Hey Hey @Rochelle Fernando - Did you make any further progress on your chicago purchase?

I meant to recommend connecting with @Zack Karp or @Jose Valdovinos who are both rock star lenders that work a lot with investors who are house hacking like yourself!
[email protected]
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1 Reply
Rochelle Fernando
OP
Member since 2025 · 14 posts · 8 votes
1y
Thank you, everyone, for all the valuable information. I am considering a 2-unit property on an FHA loan since the self-sufficiency test would not apply. However, most duplexes in Chicago are priced high, and I would have to make a larger monthly payment for the mortgage since the rental income will be significantly lower compared to a 3-4 unit property. Please let me know what some good neighborhoods in Chicago that are safe and have higher rental potential. I am thinking of Pilsen, Bronzeville, West Humboldt park and Ukraine village. Also what are some main things I should look out for!
0 Reply
- Tj FlorosPro Member
  Real Estate Agent · Chicago · Member since 2025 · 95 posts · 74 votes
  1y
  Quote from @Rochelle Fernando:
  
  Thank you, everyone, for all the valuable information. I am considering a 2-unit property on an FHA loan since the self-sufficiency test would not apply. However, most duplexes in Chicago are priced high, and I would have to make a larger monthly payment for the mortgage since the rental income will be significantly lower compared to a 3-4 unit property. Please let me know what some good neighborhoods in Chicago that are safe and have higher rental potential. I am thinking of Pilsen, Bronzeville, West Humboldt park and Ukraine village. Also what are some main things I should look out for!
  With a 2 flat it's pretty hard to get those properties to cash flow post non owner occupied or to live in the property below market rate rent when using an FHA loan. If that's your plan I would try to target a 2 flat with a non conforming 3rd, usually a garden unit. While a lender won't count that rent from the non conforming 3rd unit during underwriting post closing it will help you a lot when it comes to paying your PITI and hopefully you are living below market rent for whatever unit you plan to live during the house hack. those are all good areas, but some have higher price points then other, especially if you're looking for turn key. A lot of house hackers are having success on the west side if you're ok living in the area.
  
  [email protected]
  1 Reply
Tiger Harris
Member since 2020 · 4 posts · 0 votes
1y
@Rochelle Fernando
One way to help you put less down & have reserves could be to use a DPA program. I have one with no income limit that is basically the same as an FHA loan characteristic wise. You can get 3.5% or 5% of the purchase price in a conventional 2nd lien (so it doesn't count against the FHA loan limit per county). You need a 600 credit score to qualify and don't have to be a first time home buyer. You can even own a property currently and still use it.

Having the reserves isn't always a requirement. It will depend on your credit & debt to income ratio. However, it is a good rule of thumb to be ready for something to break once you buy the home. Something always does.
0 Reply
- Rochelle Fernando
  OP
  Member since 2025 · 14 posts · 8 votes
  1y
  Quote from @Tiger Harris:
  
  @Rochelle Fernando
  One way to help you put less down & have reserves could be to use a DPA program. I have one with no income limit that is basically the same as an FHA loan characteristic wise. You can get 3.5% or 5% of the purchase price in a conventional 2nd lien (so it doesn't count against the FHA loan limit per county). You need a 600 credit score to qualify and don't have to be a first time home buyer. You can even own a property currently and still use it.
  
  Having the reserves isn't always a requirement. It will depend on your credit & debt to income ratio. However, it is a good rule of thumb to be ready for something to break once you buy the home. Something always does.
  
  Thank you for that. Don't I have to have a household income below the average to qualify for this DPA program. Can you please share the one with no income limit. Thank you!
  0 Reply
- Tiger Harris
  Member since 2020 · 4 posts · 0 votes
  1y
  Quote from @Rochelle Fernando:
  
  Quote from @Tiger Harris:
  
  @Rochelle Fernando
  One way to help you put less down & have reserves could be to use a DPA program. I have one with no income limit that is basically the same as an FHA loan characteristic wise. You can get 3.5% or 5% of the purchase price in a conventional 2nd lien (so it doesn't count against the FHA loan limit per county). You need a 600 credit score to qualify and don't have to be a first time home buyer. You can even own a property currently and still use it.
  
  Having the reserves isn't always a requirement. It will depend on your credit & debt to income ratio. However, it is a good rule of thumb to be ready for something to break once you buy the home. Something always does.
  
  Thank you for that. Don't I have to have a household income below the average to qualify for this DPA program. Can you please share the one with no income limit. Thank you!
  
  Hey Rochelle,
  No, there is no income limit or area median income to stay under with this program. Its an in house down payment assistance program that my company offers that couples with FHA financing. I tried to include my flier for it but I don't think it attached. Its called the Cardinal Elite Down payment assistance program. Feel Free to google me and my company and I can send you the flier. But the only requirement is a credit score above 600 and then you qualify for it like you would with an FHA loan. (Primary residence, dti under 57%, etc).
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