Updated almost 7 years ago on . Most recent reply
FHA ?? Rules Something I just learned and want to share!!
Something I learned today!
{Three to Four Unit: A three- to four-unit property is a Single Family residential property with three to four individual dwellings. The mortgage must obtain a completed form HUD-92561 (Borrower's contract with respect to Hotel and Transient Use of Property)- Required at initial application and closing.
Self- Sufficiency of Rental Income Eligibility- Net Self-Sufficiency Rental Income refers to the Rental income produced by the subject property over and above the Principal, Interest, Taxes, and Ins (PITI). The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four- unit properties. Net Self-Sufficiency Rental Income is calculated by using the appraiser's estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtracting the greater of the appraiser’s estimate for vacancies and maintenance, or 25 percent of the fair market rent.
Reserves for Three- to Four- Unit Properties. The mortgagee must verify and document Reserves equivalent to 3 months' PITI after closing for 2- to 4- unit properties. If using reserves as a compensating factor, minimum reserves are 6 months or more. }
Which in a nutshell says that the rent that you receive on the other 3 units, cannot exceed the total payment on your mortgage. Which is determined by the appraiser.
Most Popular Reply
Based on what you've written, I don't think it's necessarily the other 3 units. The Net Self-Sufficiency Rental Income is the appraiser's estimate of Fair Market Rents from all units, including the unit the Borrower chooses for occupancy minus an amount for vacancies and maintenance (either an estimate by the appraiser or 25% of the fair market rent, whichever is higher).
I don't think it says that. From what you've written, it sounds like the PITI divided by the Net Self-Sufficiency Rental Income cannot exceed 100%. That is to say, PITI / Net Self-Sufficiency Rental Income <= 1.0. From what you wrote, it sounds like you are saying the rental income from 3/4 units in a quad can't be greater than PITI. That is to say, PITI / (0.75 * Total Rental Income) <= 1.0. I don't understand that to be the case from what you've written. Also, I think what it's saying is that your Net Self-Sufficiency Rental Income must be greater than your PITI. This is because if the PITI is greater than the Self-Sufficiency Rental Income, then the resulting decimal will be greater than 1. If the Self-Sufficiency Rental Income is less than your PITI, then the resulting decimal will be less than 1.
Examples (fictional numbers to demonstrate):
Net Self-Sufficiency Rental Income < PITI
PITI = $1000/mo
Net Self-Sufficiency Rental Income = $500/mo
PITI / Net Self-Sufficiency Rental Income = 1000 / 500 = 2.0 = 200% (Not Allowed)
Net Self-Sufficiency Rental Income > PITI
PITI = $1000/mo
Net Self-Sufficiency Rental Income = $1500/mo
PITI / Net Self-Sufficiency Rental Income = 1000 / 1500 = 0.67 = 67% (Allowed)
Are you saying that the total payment on the mortgage (PITI) is determined by the appraiser? If so, that's not what I understood from what you wrote. The appraiser determines the Net Self-Sufficiency Rental Income (from determining the fair market rent from all units and estimated vacancies and maintenance), not the PITI. You could be referring to the Net Self-Sufficiency Rental Income, but it's not clear to me. My apologies if I misinterpreted what you wrote.
I've never heard about this before. Where did you get this information? It's important information to be aware of as a first-time investor.
You make it sound like this measurement (PITI / Net Self-Sufficiency Rental Income) will limit what rent you can receive from a triplex or quad, but it sounds more like a measurement to ensure that the income the property generates can cover the mortgage payment and then some.