What You Need To Know About House Hacking a 3-4 Family With FHA

I'll keep this short and sweet - but this is a MUST know if you are looking to house hack with FHA.

First, I truly believe house hacking is the best way to get started investing, especially in a HCOL market like Boston (where I'm from). It allows you to get into a small multifamily with 3.5% down, which is a huge savings when talking about $800k to $1M properties.

If using FHA to do this, and you're looking to buy a 3-4 family (as most of us try to do), you need to know about the self-sufficiency test requirement by FHA.

FHA separates their 1-2 family properties, and their 3-4 family properties. The 3-4 family properties are treated more as an investment, and here's how:

3-4 Family homes are required to pass the self-sufficiency test in order for FHA to lend on a property. This means that the total monthly mortgage payment (Principal, Interest, Taxes, Insurance, Mortgage Insurance) must be less than the rental income for all units. Now, that doesn't seem too challenging, right? Wrong - they than use a vacancy factor of 25%. So, 75% of your rental income needs to be more than the total monthly mortgage payment.

In some markets, this is probably easier than others. But, as a house hacker, and lender, I see this all the time in my market. It's really tough to find a deal that can pass this test in a HCOL market.

Now - that doesn't mean give up. There are many ways to get creative and pass the test, but, just know this when you're searching for properties!

Hope this saves you some trouble on your next deal!