What is the FHA Self Sufficiency Rule?
The FHA Self Sufficiency Rule applies to FHA borrowers looking to finance a property with 3 or 4 units. This does NOT apply to buyers purchasing a one or two unit property. It requires the property and loan to pass a couple financial tests in order to qualify for FHA financing.
Basically, the FHA wants to know that the property you’re about to purchase will be self-sustaining. In other words, they want to know that the income brought in from rent will cover the mortgage.
How is self-sufficiency test calculated?
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.
Calculating the Mortgage Correctly
Even more critical than the appraisal, however, is the loan calculation. In fact, correctly calculating the cost of the loan is the single most important step in the qualification process, determining how much the FHA will be willing to cover and, therefore, how much you will be able to finance.
Included in that monthly mortgage calculation are the following costs:
Principal
Interest
Taxes
Mortgage insurance
Homeowner’s insurance
Example:
The above four plex is listed for sale at $580,000 and the rents per the listing agent are posted at $4920 per month (Unit 1 -$1245, Unit 2-$1300, Unit 3- $1100.00, Unit 4- $1275.) Using the current market rents the maximum monthly payment on this property could be $3689.99. ($4920*.75=$3690) Again the appraisers opinion of fair market rents would be the figured used, but for this example we will be using the posted rents.
