House Hacking Using 203k or Homestyle Loan to Duplex Down

Chicago, Illinois
House Hacking
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House Hacking Using 203k or Homestyle Loan to Duplex Down

Lucas Helliker
Investor · Chicago · Member since 2023 · 5 posts · 8 votes

Hi all, 

I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!

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Tj FlorosPro Member
Real Estate Agent · Chicago · Member since 2025 · 95 posts · 74 votes
1y
Quote from @Lucas Helliker:

Hi all, 

I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!


 Hey Lucas, 

I'm actually in the same boat as you, I'm looking to house hack a 2 flat in the northside and duplex down to the basement to have a bigger onwer's unit. I'm focusing on a 2 unit vs a 3-4 unit because most north side building wont pass the FHA self sufficiency test.

However, I used the homestyle renovation 5% down loan on a 3 unit to update all the units which came out to about 100k per unit. I just finished that project last month in early March down in Bridgeport. From my experience with the loan program I had to use a licensed GC and pull all permits as needed, I had to forward all approved permits and architect drawings to the bank to do any withdrawals and to pass underwriting. 


Now if you had private money, hard money, or a HELOC maybe that could be a work around to avoid having to get permits and having to get the city involved which as you know could cost you way more money than what you budget for.

Since you are not adding a legal unit through the ADU program and just adding more living space to the first floor by going down into the basement i'm sure there are some loop holes or items that you could maybe avoid or maybe "not do". Since my budget is extremely tight I'm trying to avoid updating the water service, having to dig down, possibly leaving the floor joist exposed to make the basement feel taller. One thing I WOULD do is water proofing, ie drain tile, and possibly updating the underground sewer line if needed before I finish the space.

Depending on the amount of deals you have done it might be hard to get hard money, but I would try that first to try to save some money on the front end then just refi into a conventional loan when the project is finished. I would also suggest looking into the area you want to buy and looking at ARV's then running the numbers backwards into your deal to see what your purchase price needs to be.

If you want to talk more about this or need any help, I'm always free to chat ! 

[email protected]
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  • Ty CouttsBusiness Member
    Lender · Denver, CO · Member since 2022 · 467 posts · 230 votes
    1y

    Hey Lucas,

    a Fannie Mae HomeStyle Renovation loan can potentially be used for a project like duplexing down a unit, as long as the work is fully permitted and completed by a licensed contractor. The key is that the renovations must be permanently affixed and add value to the property. Since you've been through the ADU process before, you already know the city can require major upgrades like electrical, plumbing, or even underpinning if ceiling height is insufficient and yes, similar requirements could apply when finishing a basement as part of a legal unit expansion.

    From a lending standpoint, the ARV (after-repair value) will be crucial. The appraisal will be based on comparable duplex-down units in your area, so doing your homework on local comps is definitely smart. Just be aware that construction cost vs. value-add is a real consideration, especially in markets like Chicago where basement work can get pricey fast.

    Happy to chat more if you want to explore how this could look financing-wise. Good luck, sounds like a great plan for both lifestyle and long-term equity!

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  • Jarret Jarvis
    Real Estate Agent · Chicago · Member since 2021 · 168 posts · 62 votes
    1y

    Hey Lucas,

    Love the way you're thinking this through—duplexing down in a 3-flat can definitely be a great house hack strategy and a smart value-add play. I’m a real estate agent and investor here in Chicago and have seen quite a few folks go the route you’re describing.

    You're right to be thinking about permits and the potential scope of work. Even if you're not digging down again, you may still run into:

    • Waterproofing requirements

    • Egress window additions for bedrooms

    • Upgraded electrical and plumbing (especially if existing lines aren’t to code or can't handle the added load)

    • Possibly needing to sprinkle the building depending on layout and occupancy

    As for financing, a Homestyle loan or FHA 203k could potentially work, especially if you're occupying the building. Definitely worth running it by a renovation loan lender early—they’ll help you gauge feasibility and get a rough idea of what’s financeable.

    Also smart to be thinking about ARV—duplex-downs in the right neighborhoods can really boost resale value, but the premium depends heavily on finishes and layout.

    If you want to connect offline or want intros to a few lenders or contractors familiar with this route, happy to help! #letsgo

    Best,

    Jarret Jarvis

    1Reply
  • Tj FlorosPro Member
    Real Estate Agent · Chicago · Member since 2025 · 95 posts · 74 votes
    1y
    Quote from @Lucas Helliker:

    Hi all, 

    I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

    Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!


     Hey Lucas, 

    I'm actually in the same boat as you, I'm looking to house hack a 2 flat in the northside and duplex down to the basement to have a bigger onwer's unit. I'm focusing on a 2 unit vs a 3-4 unit because most north side building wont pass the FHA self sufficiency test.

    However, I used the homestyle renovation 5% down loan on a 3 unit to update all the units which came out to about 100k per unit. I just finished that project last month in early March down in Bridgeport. From my experience with the loan program I had to use a licensed GC and pull all permits as needed, I had to forward all approved permits and architect drawings to the bank to do any withdrawals and to pass underwriting. 


    Now if you had private money, hard money, or a HELOC maybe that could be a work around to avoid having to get permits and having to get the city involved which as you know could cost you way more money than what you budget for.

    Since you are not adding a legal unit through the ADU program and just adding more living space to the first floor by going down into the basement i'm sure there are some loop holes or items that you could maybe avoid or maybe "not do". Since my budget is extremely tight I'm trying to avoid updating the water service, having to dig down, possibly leaving the floor joist exposed to make the basement feel taller. One thing I WOULD do is water proofing, ie drain tile, and possibly updating the underground sewer line if needed before I finish the space.

    Depending on the amount of deals you have done it might be hard to get hard money, but I would try that first to try to save some money on the front end then just refi into a conventional loan when the project is finished. I would also suggest looking into the area you want to buy and looking at ARV's then running the numbers backwards into your deal to see what your purchase price needs to be.

    If you want to talk more about this or need any help, I'm always free to chat ! 

    [email protected]
    2Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    1y
    Quote from @Lucas Helliker:

    Hi all, 

    I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

    Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!


    You're spot on regarding doing your market research on the ARV before pulling the trigger.


    Regarding buying a 3 flat with a basement and duplexing down. To save $

    1. Don't add a bathroom or kitchen in the basement or anything that may require a new water service

    2. Use a self certified architect- It saves time which I equate to saving $

    3. My GC friends on BP are going to cringe & you may not be able to do this using an owner occupied renovation loan- but only use the GC's for the items that require permits.  i.e. Electrical, plumbing, HVAC....  then act as your own contractor and sub out the rest. Permits aren't required to paint, hang cabinets........ 

    312-681-7487
    1Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    1y
    Quote from @Lucas Helliker:

    Hi all, 

    I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

    Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!


     Water service and utilities will be required.  The dig depends on the ceiling height, if it is already 7 feet after drywall/flooring you don't need to dig.  I would budget $150k-$250k to duplex down into an unfinished basement

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  • Jack Matthias
    Lender · Chicago · Member since 2023 · 176 posts · 70 votes
    1y

    This is possible with the Homestyle loan and will be more attractive than a 203K. Like others mentioned it will all have to be permitted and contractors approved and willing to be paid in draws. My team has an inhouse renovation team that specializes in projects like this. 

    You will also have to wait 1 year from the purchase of the building to do a cash out refi. And make sure the unit is bigger than where you currently are otherwise an underwriter will have a hard time believing your moving your family into a smaller unit.

    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    1y

    What's up @Lucas Helliker!  Congrats on jumping in to the Chicago real estate game!

    ADUs are super tough here in Chicago because of the high cost - if you do an ADU, you almost for sure have to do a new water service, plus in such a small space, you still have all the same MEPs in such a small 600 SF space.

    Love to hear you would be pulling permits, that is definitely the only way to go with something like a duplex.  

    If you need a renovation loan, you should definitely connect with @Landon Hoon or @Jose Valdovinos!

    Look forward to seeing you at the next cashflow meeting: https://www.biggerpockets.com/forums/521-real-estate-events-...

    [email protected]
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