How to Document a Vacant Unit for an FHA Cash-Out on Your Duplex

The Quick Read: A vacant unit does not disqualify an FHA cash-out on a duplex, because the occupancy test is about the unit you live in. You prove your own 12 months of ownership and occupancy, keep the empty unit accessible and in livable condition, and let the appraiser set its market rent. No lease and no tenant are needed. What can go wrong is a unit that is not ready on inspection day.

Why Doesn’t an Empty Unit Break the Occupancy Rule?

The occupancy rule attaches to the borrower, not to every door in the building. On an FHA cash-out, at least one borrower must have owned the home and lived in it as a principal residence for the 12 months before the case number is assigned. Nothing in that test asks whether the other unit has a tenant.

Two-to-four unit homes are eligible as owner-occupied properties, and HUD’s refinance reference guide lists one-to-four unit properties on that basis. Across the wholesale programs Lendmire places FHA files with, the cash-out reaches 80% LTV on a home you have owned and occupied for those 12 months. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

The vacant unit is a rental-income and appraisal question. Treat it that way and the file stays simple.

Key Terms Defined

• Case number: the HUD-assigned identifier that starts the FHA file and anchors the 12-month occupancy look-back.
• Owner-occupant: a borrower who lives in the property as a principal residence, which for a duplex means one of the two units.
• Market rent: the appraiser’s opinion of what the unit would rent for, based on comparable rentals rather than your hopes.
• Rent schedule: the part of the appraisal that reports rent for each unit in a two-to-four unit property.
• Self-sufficiency test: a rent-versus-payment test that applies to three- and four-unit homes, not duplexes.

How Is the Loan Underwritten, Step by Step?

Here is the sequence, in the order a file actually moves.

1. Occupancy and ownership history. The lender confirms 12 months of ownership and occupancy, counted back from the case number. Utility bills, employment records, or other documents tied to the property address show that you live there.

2. Mortgage payment history. The lender looks at how all of your mortgage payments were made over the prior 12 months. Late payments can complicate a cash-out.

3. Credit and ratios. The wholesale programs we place FHA loans with start at a 580 decision score. The base ratio pair is 31/43 (housing to total income), and documented compensating factors can reach 40/50 at the top tier. For most files, the automated finding governs.

4. Appraisal on the two-to-four unit form. The appraiser uses Form 1025, the small residential income property report that covers two-to-four unit properties.

5. Rent for the empty unit. The appraiser reports market rent from comparable units. You supply no lease.

6. Cash-out limits and premiums. The loan tops out at 80% LTV. FHA charges an upfront premium of 1.75% of the base loan, which can be financed, plus an annual premium that depends on term, loan amount, and LTV. County loan limits apply.

A non-occupant co-borrower’s income cannot be used to qualify on a cash-out, even though a non-occupant co-borrower is allowed on a purchase.

What Does “Documenting” the Vacant Unit Actually Mean?

Documenting means showing the lender and appraiser three things: why the unit is empty, that it is accessible, and that it meets basic property standards. It does not mean producing rent you have not collected.

Practical file items, depending on the lender:

• Proof you live in the other unit. Driver’s license, utility bills, and mail at the property address.
• A short written explanation of the vacancy. Turnover, a tenant who moved out, or repairs in progress. Plain facts, no spin.
• Prior lease and move-out date, if the unit was rented before. This helps the lender see a normal vacancy and not a change in how the property is used.
• Evidence of the unit’s condition. Photos or repair invoices if work was recently done.
• Utility accounts that are active. More on this below.

Lender overlays differ. Some lenders ask for more about a unit that is listed for rent or under renovation, so ask early what yours wants.

How Does the Appraiser Treat a Unit With No Tenant?

The appraiser forms an opinion of market rent from comparable rentals. HUD Mortgagee Letter 2023-17 covers rental income documentation, and for a property with limited or no rental history it points to an appraisal showing fair market rent on Form 1025. A vacant unit has no lease history by definition, so that opinion is the evidence.

Your own budget for the unit does not drive this. A rent you hope to charge counts for less than the rent comparable units actually get.

Does the rent matter to your qualifying? On a duplex, you may be able to qualify without leaning on it at all, because the self-sufficiency test applies only to three- and four-unit homes. Lenders that do count rent from the non-occupied unit typically count only a portion of the appraiser’s figure, and the exact treatment varies by lender and current HUD policy. Your own unit’s rent is not counted as income.

Unit Status and What It Means for the File

What Should You Do Before Inspection Day?

Get the empty unit ready, because this is the part you control. HUD’s appraisal protocol says that if utilities are off, the appraiser notes it and the appraisal can be conditioned on a satisfactory re-inspection (see HUD’s archived valuation protocol). That means delay and possibly a second visit.

Current handbook wording should be confirmed, but the practical advice holds:

• Turn on electricity, gas, and water in the empty unit before the visit.
• Unlock everything. Basement, utility closets, and attic access included.
• Fix obvious defects. Peeling paint, broken windows, and missing handrails can become repair conditions.
• Keep the units independent. HUD’s general acceptability criteria call for independent utilities and separate shutoffs for each living unit, and for a full interior and exterior visual inspection.

An unready vacant unit costs more than the effort of getting it ready.

Where Does the General Rule Break?

Several situations change the answer.

Three or four units. The vacant unit matters much more. HUD’s guide describes the self-sufficiency test and a reserve requirement for these properties. The appraiser’s market rent for every unit, including the empty one, feeds the test. A duplex is exempt. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

You just bought it. The 12-month clock is the gate. A freshly purchased duplex generally has to wait out the 12 months before a cash-out. If you are not there yet, other refinance types may fit your timing differently.

Inherited property. If you are renting out an inherited property, it does not qualify until you have lived in it as a principal residence for 12 months.

Moving out. A unit that was rented in the past does not reset your own occupancy clock. But if you no longer live in the property, the owner-occupant premise fails. Misstating occupancy is a serious problem, so be accurate about where you live.

Other refinance types. FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but it requires a net tangible benefit and does not pull out cash. An FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous 12 months.

Lease First or Refinance Now?

Leasing first rarely hurts, but it is not required on a duplex. If the unit would rent soon at a fair price, a signed lease can make your own planning cleaner. If getting a tenant means rushing a bad one, the appraiser’s market rent works without it.

Questions to Ask Your Lender

• How do you treat rent from the non-occupied unit on a cash-out, if at all?
• What do you need to see for a unit that was recently vacated or is under renovation?
• Do you set any overlays beyond HUD’s minimum on a two-to-four unit property?
• What happens if the appraisal is conditioned on a re-inspection?
• Which documents prove my own occupancy for the 12-month look-back?

Lendmire’s FHA cash-out refinance program page shows how the program fits your situation.

For your own numbers, request a scenario review with Lendmire.

For current guidelines and terms, see Lendmire’s FHA loan programs page.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD HOC Reference Guide, Refinances

2. HUD Mortgagee Letter 2023-17

3. HUD Handbook 4150.2, Appendix D

4. HUD Handbook 4150.2, Chapter 3