FOR A TRIPLEX OR A FOURPLEX
Will it pass FHA's rent test? Check in a minute.
FHA asks one extra thing of a three or four unit home: that its rent covers the payment. Put in the rents and the payment and see where yours stands. If it comes up short there are three ways through, and one of them is a loan with no rent test at all.
A duplex with an ADU counts as three.
FHA uses the appraiser's estimate of fair market rent, which can be lower than the lease. Until there is an appraisal, use rents you could defend with nearby leases.
Loan payment, taxes, insurance, mortgage insurance and any dues, from a lender's estimate.
25% is the least FHA takes off. If the appraiser's own allowance is higher, FHA uses that.
Enter a rent for each home and the payment.
If it comes up short, three ways through.
- 1
Use a conventional loan.
Fannie Mae's rules have no rent test. They add the rent from the other homes to your income instead. This is how many three and four unit homes are bought.
- 2
Bring more money down on FHA.
A smaller loan means a smaller payment. The tool below shows how far the rent is from covering it.
- 3
Offer a lower price.
Work the test from a price and the tool names the price at which it passes. That is a number to negotiate with.
The rule, in its own words.
“The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four-unit Properties.”
“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.”
HUD Handbook 4000.1, section II.A.1.b.iv(B)(3)(c), Self-Sufficiency Rental Income Eligibility. PITI is the whole payment: principal, interest, taxes and insurance.
How the test is counted.
It uses the appraiser's rents.
The handbook says the appraiser's estimate of fair market rent. Before there is an appraisal, use rents you could back with nearby leases.
It counts the home you will live in.
Every home is counted as if it were rented, yours included.
A quarter comes off the rent.
FHA takes off 25%, or the appraiser's own allowance for vacancy and upkeep if that is more.
A duplex with an ADU counts as three.
FHA treats two homes and an accessory dwelling unit as a three unit home, so the test applies.
Short answers.
- What is the FHA self-sufficiency test?
- It is one extra check FHA makes on a three or four unit home. The appraiser's estimate of rent from every home in it, including the one you will live in, less a quarter for vacancy and upkeep, has to cover the monthly payment.
- What if the home comes up short?
- There are three ways through. A conventional loan has no such test. On FHA, more money down lowers the payment until it passes. And a lower price does the same. Many triplexes and fourplexes are bought with a conventional loan for this reason.
- Does the test apply to a duplex?
- No. It applies to three and four unit homes. FHA counts a duplex with an accessory dwelling unit as a three unit home, so the test applies to that.
- Does my income change the result?
- No. The test compares the home's rent with the payment. Your income and savings are looked at separately, as on any home loan.
Have a home in mind? We will run it for you.
Send the address or the listing. We run this test with the leases and nearby rents and tell you which loan fits, in one business day. It is free.
Free. No credit pull.