Using 50% Rule with an FHA Loan Question

[Riley A Holzmeyer]

So the 50% rule is taking 50% of the rents and saying that will put towards operating expenses. So what is left is used to pay for the mortgage. So when dealing with an FHA loan and having extra payments like MIP. Would what is left after taking the 50% be the principal, interest, and MIP? Maybe it is just my market, but from the properties I have inspected that would be a very hard to have 50% of your rent cover those three payments monthly.

Thanks in advance for the help. 

[Jaysen Medhurst]

@Riley A Holzmeyer, you're correct. In many markets you won't be able to cover all of the debt service for 2 reasons:

1. You've leveraged at 96.5% LTV.
2. You're "losing" rent from the unit you live in.

With FHA the aim is to dramatically lower your living expenses (helping you save for another property). After living in the property for 1+ year, you can move out. At which point the additional rent should allow for some cash flow.

This is why it's important to run your analysis two ways, with you living there and when you move out.