How strict is the FHA Self Sufficiency test?

[Ben Hunt]

I'm looking at buying in an off market 4-Plex in Austin Texas using FHA financing where passing the self sufficiency test is iffy.

In my calculations, 75% of the total rent covers approximately 100% of the PITI. However, there is not much room for deviation here.
If the appraiser finds that the fair market rent is a bit less and the calculation then shows that 75% of the total rent covers 95% or 90% of the entire mortgage, is the whole financing deal a no-go?

Does the underwriter take into account my income or credit history as a factor for leniency on this rule?

Thanks and let me know,

Ben

[Albert Bui]

Quote from @Ben Hunt:

I'm looking at buying in an off market 4-Plex in Austin Texas using FHA financing where passing the self sufficiency test is iffy.

In my calculations, 75% of the total rent covers approximately 100% of the PITI. However, there is not much room for deviation here.
If the appraiser finds that the fair market rent is a bit less and the calculation then shows that 75% of the total rent covers 95% or 90% of the entire mortgage, is the whole financing deal a no-go?

Does the underwriter take into account my income or credit history as a factor for leniency on this rule?

Thanks and let me know,

Ben

The test immutable and has zero margin of error. With that said though there are ways to adjust rents, prepare for higher rents for the appraisers comps and is based on the appraisers opinion of market rents versus the PITIA or monthly payment (principal/interest/taxes/insurance/assessments).

You can work the upper end of the equation which is the income and fix up the units to get a higher opinion of rental values or you can work the denominator which is the expense side of the equation by:

- putting more money down (the worst solution of them all since it counters the whole thesis of why you're using FHA in the first place)
- you can buy down the rate on the 30 year
- you can switch to the 5/1 ARM FHA to get a lower rate and cheaper buy downs between rates (FHA underwriters qualify because on the note rate on FHA even with ARM's or adjustable rate mortgages)
- you can get a lower insurance quote
- you CANNOT mess with property taxes unless you know a politician locally (joking of course)

At the end of the day the FHA SS or self sufficiency rule only has a numerator or denominator and you can work all ends but there isnt much else to make sure you can get the maximum loan amount per fha guidelines.

A good investor and lender will be able to help you maximize both or prepare you in advance so that you dont deal with this stuff at the 11th hour (if you do you will be the best prepared you can possibly be prior to the application date).

Best of luck,