Understanding the FHA Self-Sufficiency Test: How to Find Multi Unit Properties that Pass the Test

If you plan on buying a two unit mutli family, three unit multi family, or four unit multi family residential dwelling with an FHA Mortgage, you would be required to pass the self-support (or self suffciency test) administered by the Federal Housing Administration (FHA) to demonstrate expected rental income from the additional units (and the owner occupied unit) will be high enough to cover the monthly mortgage payment, mortgage insurance, property taxes, and the homeowners insurance. The FHA Self-sufficiency test 2022 may be slightly altered with the increase FHA mortgage limits for 2023, but reach out to an FHA Approved Mortgage Lender to learn how the fha self sufficiency test calculator can be utlizied to analyze your potential investment property.  

What is the FHA Mortgage Self Sufficiency Test For Rental Income

  • Self-Sufficiency Rental Income Eligibility: Self-Sufficiency Rental Income refers to the Rental Income produced by the subject Property over and above the Principal, Interest, Taxes, and Insurance (PITI).
  • The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three-unit to four-unit properties.

How are Fair Market Rents Determined for FHA Financing?

  • Net Self-Sufficiency Rental Income is calculated by using the Appraiser’s estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtracting the greater of the Appraiser’s estimate for vacancies and maintenance, or 25 percent of the fair market rent.
  • If the fair market rent for a four unit multi family property are $1,000/month (x 4 Units), the gross monthly rental income (total rent) would be estimated at $4,000 (minus a 25% adjustment for vacancy rate/repairs).
  • Your total monthly mortgage payment could not exceed $3,000/month in order to pass the self sufficiency test.
  • The fair market rent value is determined for all units regardless of occupancy type, so the owner occupied unit (primary residence) will be used for the FHA self sufficiency rental income test.

What is PITI (Principal, Interest, Taxes, Insurance)?

PITI is an acronmyn often used by lenders and underwriters to describe the total monthly mortgage payment for a property that is being used as collatteral to underwrite a mortgage. An underwriter needs to make a decision based on the borrowers total monthly obligations to own the property.

How Can I Caclulate the fair Market Rental Income for My Property?

If you are purchasing a multi unit property with an FHA Loan, you will need to prove that your net rental income after paying the PITI will be enough to pass the self sufficiency test. Before you have to pay for an FHA certified appraiser, there are some resrouces you can check out to help determine what the fair market rent would be. The service Rentometer or the MLS with recent similar rental listings would provide a good estimate of how to calculate your net rental income using the self sufficiency test for an FHA Loan.

How Can I find Properties That Pass the FHA Loan Self Sufficiency Test?

An FHA loan is designed for residential dwellings up to four units with one of the units being an owner occpuied unit (primary residence), so the following search for 2-4 Units will help you find active listings that pass the self sufficiency test.  

4321 Hack Videos and Examples from Past Transactions Below

Included below are 2-4 Flats. If you would like more information on any of these 2-4 Flats real estate listings, just click on a property to access the full details. From there, you can request more information or schedule a tour. And we'd be happy to provide you with disclosures, past sales history, dates and prices of properties which have recently sold nearby, and more, so just let us know how we can help!

And, for your convenience, feel free to register for a free account to receive email alerts whenever new 2-4 Flats listings come on the market that match your specific criteria.

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