FHA Self Sufficiency Test

[Maen Abu Khater]

BP Community, 

There is a Multi-family (4-plex) that I am interested in purchasing. Currently all 4 units are 1 BD 1 BATH Units and with the current market rents for 1 BD 1 BATH..... The property doesn't pass the FHA Self Sufficiency Test. I plan on getting a 203K Loan to perform a major re-model on all 4 units and eventually convert them to 2 Bed & 1 or 2 Bath. Can the appraiser appointed by the FHA Lender assess the rental income based on the units post renovation. Comparable market rents for 2 Bed 1 Bath Units allow the property to pass the FHA Self Sufficiency Test ? I am not familiar with how a 203K loan on top of an FHA loan comes into play. Just trying to make it work, so I would appreciate any support.

Does the same also apply for an owner-occupied convectional loan ?  

Thanks BP!

[Lawrence Potts]

Hey @Maen Abu Khater,

This is one of the biggest hurdles going fha on 3-4 units. From what I’ve run across, they will take the current rents of each unit. If the units are vacant, they will take marker rent. So having the units vacant is a huge help for owner occupied buyers. I don’t think they can adjust for 2/1 if it is not currently a 2/1 because now the appraiser is basically increasing the value of a property based off of what it could be, almost a pro forma, rather than how it currently operates today, “as-is”. And a lender does not lend off of potentials, eventually, someday, they lend on as-is. So chances are, no, they will not go off of 2/1 rents if it is only a 1/1.

The self-sufficiency test is only for FHA though, you can go conventional owner occupied and not have to go through that hurdle. However, you'll need +20% down to purchase. There are some nonowner occupied products that you can do less than 20% (some close to 10%) but they're few and far between