FHA House Hacking Updated on 1-4 Units
These are somethings to look out for when attempting to utilizing the FHA program to house hack:
- on 1 unit properties you cant use your room mate or boarder income to help you qualify so you'll need the income to qualify all by yourself. There are exceptions but its in a limited circumstances
- on 2-4 unit properties you can use 75% of the gross rental rates or current lease agreement rates of the other legal units to help you qualify on your loan
- on 3-4 unit properties you'll have to meet a rule called a self sufficiency rule which states that 75% of the sum total of rents on all of the units, including the one you'll be living in, will need to be equal to or greater than the PITI of the property (principal/interest/tax/insurance monthly payment).
- generally you'll need around $2.15 of monthly income before tax for each dollar of payment you'll be paying on your monthly mortgage so if your PITI is $2500 per month then you'll need X 2.15 = $5375 monthly gross income to qualify at a "min." If there are additional obligations or monthly debt you'll have to have additional income for those obligations as well similar to the monthly mortgage payment. If there is rental income then you can use it to help qualify.
- generally you can only have 1 FHA mortgage loan outstanding however there are 4 exceptions where you can get a 2nd FHA loan and they are: 1) when you relocate to another area for employment related reasons, 2) you cosigned on another's FHA loan and now want to use FHA yourself, 3) were awarded through legal action or divorce, 4) can document a larger family size whereby a new home or FHA loan would be needed.
- student loans will now need to be counted even if the payment is deferred we use a 2% factor or the min payment showing on the loan whichever is higher. This may change in the future and in the past we used to not count deferred student loan payments over 12 months but that rule has since changed.
- rental income used to help qualify does not require 2 year landlord experience
- unpermitted additions are okay as long as they are in "workman like manner," generally however certain circumstances certain repairs may need to be made prior to closing or approval
If you have any questions on FHA or if I missed any particular area about FHA you thought was important feel free to message me and I'd be happy to discuss it.
Comments (4)
@Albert Bui, first, hanks for the information. Does these numbers apply to FHA 203K loan as well?
Account Closed, over 7 years ago
yes
Albert Bui, over 7 years ago
@Albert Bui thanks for the great info!
My lender has told me something a little bit different than what you stated in the 75% self sufficiency rule section. According to my lender, only 75% of the income from the units that I rent out can qualify for the self sufficiency rule. Therefore, I cannot use the income that my unit would generate towards the 75%. Do you know if it's different from lender to lender, or am I simply misunderstanding something? Thanks!
Ryan Cheung, about 8 years ago
since you're coming upon the self sufficiency rule it means you're probably working on a 3-4 unit FHA property right ?
The rule from FHA is 75% of the rents for all units however some lenders have their own conservative interpretation of these guidelines. Sometimes it's a lender being conservative and sometimes it's just misinterpretation.
I just funded one a few months ago it was 75% of the rental income of all 3-4 units. The rule was designed assuming FHA had to take back the property as an REO that the bank could generate enough income to service the note payment.
Albert Bui, about 8 years ago