#1 Killer Of FHA House Hack Deals

Looking to get started house hacking? You'll quickly learn the most common mortgage option is an FHA mortgage (reasons explained later). 

What most don't know, often until it's too late, is about the FHA Self-Sufficiency Test.

What is this test? In simple terms, it's a rule that FHA has in place for 3-4 unit properties only, and the idea is to protect themselves so that they are only lending on "solid" deals.

Residential lending typically does not care if you make a good investment or not (unlike commercial lenders), but, FHA does.

Here's what you need to know:

Self Sufficiency: Net self-sufficiency rental income refers to the rental income produced by the subject property that is over and above the PITI amount. Calculate by using the Appraiser's estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtract the greater of: the Appraiser's estimate for vacancies and maintenance, or 25% of the fair market rent.

• • • This rule applies to FHA 3-4 families ONLY
    • Example: 3-unit property:
      • • Unit 1: $1,800
        • Unit 2: $2,000
        • Unit 3: $2,000
        • Total Rent: $5,800
        • Net Rent (75%): $4,350

•For this property to be FHA eligible and pass the Self-Sufficiency Test, the full monthly mortgage payment (Principle/Interest/taxes/insurance/mortgage insurance) must be less than $4,350.

Any deal that does not pass this test, regardless of how qualified you are, FHA will not lend. And yes, this applies to ALL LENDERS. 

This is incredibly important to know, as most (even industry professionals) don't know this rule exists. So, want to keep your deals alive? Want to really look like you know what you're talking about? Learn and understand this rule and you'll have a leg-up on most!