HELP: FHA Appraisal Issue - Projected Rents

3 Replies


I am in contract with a 4 Plex in Oakland CA. We are about to close and just got notice from the appraiser that the current rents are projected to be $4,400. Apparently the FHA loan has a self-sufficient guideline that states, "Subject must be self-sufficient. 85% of the Fair Market Rents on all units per the appraisal must be greater than the PITI". Due to this guideline that projected rents would need to be $5400. Based on my analysis of current apartments for rent in the area and my realtors opinion that has rental properties, getting $1500 per unit would not be a problem and would still be considered under market. It looks like, through the appraiser report, that he/she is using existing rents from properties on the market right now (and properties that have long term tenants that are under market). I've talked with my realtor and broker and we want to discuss this with the appraiser and see if he/she would revise based on market rents that we show them (we have existing lease agreements of similar units paying more than $1500 from my realtor). Does anyone have any experience with this and can offer any help?? This is my first investment property and I am so close to closing this deal. This is seeming like it will shut down the deal!!!!

As always…thanks in advance.


The only thing that comes to mind is that you try a different lender. The only similar experience I have ever had was not on any of my own properties but one I had been the GC on and the owner was a friend of mine. Everything we had collected between ourselves the real estate agent including an independent appraiser concluded the house was worth $400K but the buyer's bank would only appraise the property for $325K and refused to budge no matter what. My friend had borrowed the money to do the rehab and was anxious to get his loan paid off so he ended up settling for the $325K and sold the house as a huge loss of potential capital gains. 

Hi Kyle,

I had the exact same issue when I bought my fourplex in San Jose with FHA. The appraiser used the low current rents instead of the actual fair market rents. The appraiser argued that the current rents are the best estimation of "fair market rents." I appealed the appraisers estimation of market rents, citing numerous listings from Craigslist showing that fair market rent was much higher than current rents. The head appraiser who reviewed my appeal argued that Craigslist merely represented "asking" rents, not actual fair market rents. What you have (existing lease agreements for similar units) is slightly better, but frankly, I found that trying to convince my appraiser to change his opinion was a waste of time.

Perhaps your appraiser will be more willing to work with you than mine was, so I suppose it's worth a shot trying to appeal it, but I'd start exploring other options just in case he doesn't come around. 

In the end, I had to switch lenders to someone who was able to pull some strings and look at other compensating factors. I had to buy down my interest rate, and put more money down (about 8% instead of the 3.5% I was planning on), but I was finally able to close it. 

If I were you, I would do four things:

1. Talk with the appraiser and make your case about fair market rents. Try appealing it. It's a lot of work and in my case I was unsuccessful, but if you can convince the appraiser to change their estimate of fair market rent, you're all set.

2. Hope for the best but prepare for the worst. Assuming #1 doesn't work, start looking for a lender that can look past the fair market rents issue. With FHA, the appraisal stays with the property, so even if you look around at other lenders, you can't get a new appraiser -- you need to find someone that can use compensating factors to look past the fair market rents issue. Most won't. I can refer you to the guy I used who got it done for me, but no promise he'll work out in your situation.

3. If #1 and #2 don't work out, find an alternative way to structure the deal. You may need to use a conventional loan and put 20% down. With FHA you can use gift funds from a parent/relative, so reach out to them and see if they'll "gift" you the funds. If you can't swing it, consider bringing on a partner who would put up some down payment and sign on the loan.

4. Recognize that this hangup is likely going to take you some time to resolve. If your contract deadlines are tight, you may need to extend. Bring the seller a plate of cookies and hope they'll work with you. I had to extend my contract an extra 60 days, but I had a good relationship with the seller so he was willing to work with me to get it done. Hope your seller will be just as flexible.

Good luck!

Hi Chris

Thanks for the feedback. I am looking into other solutions which include a conventional loan and a private investor to bridge the gap. Could you share your lender that you worked with to make the FHA work. It may not hurt to have a conversation with them.

The other "compensating factors" are helpful.  Thanks for your feedback.  Very helpful!!!