The FHA Self Sufficiency Test is not passing for almost all 3-4 unit properties

[Alan Asriants]

As an investor agent who started with House Hacking, I also help clients who are looking to get into the Real Estate game by House Hacking.

House hacking is an awesome strategy that lets newer investors and homeowners get started for only 3.5% down using an FHA loan

If a client is purchasing a duplex all they need to do is qualify for the loan amount they are looking at and they can use the income from the other unit to help them qualify as well

This is not the same case for 3-4 unit properties. 

For 3-4 unit homes, the borrower has to qualify for the loan amount but the rent from the other units (the ones they are not living in) have to cover your PITI (principle, interest, taxes, and insurance)

The problem now, is that almost NONE of the 3-4 unit properties qualify for this self sufficiency test

Even properties deemed to be a "good deal" don't qualify even if the borrower can

This is making it extremely difficult for House Hackers to scale and get into larger multi family properties

I was even working on helping a client out for a property that was an excellent deal with top market rents and the property still didnt qualify

There are many programs out there that are helping first time buyers, grant programs, etc. but FHA really needs to give on this self sufficiency test.

This will only create a larger gap between investors and homebuyers

Even at the low interest rates that my properties have (2.75-3.625%) they still wouldn't qualify with 3.5% down.

Something needs to change. FHA buyers, at least in my market, don't have access to deals that are selling 100k under market value, in fact, no one does.

This is true for the Greater Phila/Phila market

And before anyone tries to tell me there are deals in philly that can pass this test, please, we are not looking in D class areas. 

Hopefully we see a change so that more of our community can get into the game!

[Kevin M.]

Interesting post, thanks for the insight.

I think the reality is a lot of these Philadelphia deals "$100k under market" aren't actually under market. In fact they are still above the real 'market'. 

Philly small multi-family has taken a huge value hit over the last few years. I have investors in my circle who bought a triplex for $550k in 2015 selling it for $430k in 2023. Especially around the Temple area. Values have just taken a nosedive due to a mix of expiring tax abatements and a glut of inventory.