FHA Self Sufficiency

Anchorage, Alaska
House Hacking
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FHA Self Sufficiency

Slavik Lund
Lender · Anchorage, AK · Member since 2013 · 30 posts · 7 votes

A quick update for those who may run into this as a problem, because I deal with this a lot in my area.

Just to be clear I'm setting the definition right up front: self-sufficiency measures the appraised rents not the current market rents. In certain regions this is a problem because your appraisal doesn't come in until the very, very, very end. If there's a major flaw in the numbers, it's a nearly impossible equation to solve.

Lots of lenders trip over this and generally speaking this is heavily regionally specific because of values versus rents.

But in Alaska even in the high 6s, low 7s, this is generally a pretty straightforward issue to solve upfront during the pre-approval. Now that the rates are bit higher than that, this is becoming an almost impossible issue to solve.

The reason is that the deal needs to be built in such a way as to allow enough seller credit for you to get an unreasonably low (lower-than-market) rate in order for this equation to work out.

FHA will allow 6%. VA will allow between 4% and 6% as well. Conventional generally only 3%.

The ones that have been overcoming this with no problems, are generally real estate licensees who are building the deal for themselves & including a version of their commission and maximum seller credit creatively.

-Slav

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  • Juan Pedro López
    Member since 2026 · 7 posts · 0 votes
    1d

    @Slavik Lund Good post. To put numbers on why rates make this so hard: take a $600K triplex with 3.5% down, units appraising at $1,500 each, about $550/mo in taxes, $250 insurance and ~$150 MIP. 75% of $4,500 is $3,375. At 6.75% the full payment is about $4,705, so it fails by a wide margin. To pass at those rents, principal and interest would have to fall to about $2,425, which on a $579K loan means a rate of roughly 3%. That's why your point about building the seller credit in from the start matters: at today's rates, a buydown alone rarely closes a gap that size.

    The quick check buyers can do before writing an offer: appraised rents x 0.75 = the most the full payment (PITI plus MIP and any HOA) can be. If the payment is well above that, rents or price have to move, not just the rate.

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  • Matthew MorrowBusiness Member
    Investor · PA - NY - NJ · Member since 2019 · 829 posts · 288 votes
    1d

    @Slavik Lund good heads up for the house hackers. Appraisals have been coming in light for us across the board lately, so anything that depends on the appraised number at the very end makes me nervous. Working it out at pre-approval like you said seems like the way to go. Appreciate you posting it.

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  • Ray WilliamsBusiness Member
    Lender · Denver, CO · Member since 2017 · 164 posts · 73 votes
    16h

    Slav, good post, and Juan's math shows how big the gap gets at today's rates. A few things I'd add for anyone running into this.

    The test only applies to 3 and 4 unit properties on FHA. A duplex doesn't have it at all, so if a triplex won't pencil, a duplex in the same area sometimes works fine.

    Conventional is also worth a look. You can buy a 2 to 4 unit primary with 5% down now, and there's no self-sufficiency test. The tradeoff is that PMI pricing leans heavily on credit score and reserves matter more, but for a buyer with good credit it often beats fighting the FHA test. VA doesn't use a self-sufficiency test either, though most lenders will want to see reserves on a multi-unit.

    On the timing problem, two things help. Pull rental comps yourself before you write the offer so you're working from the number an appraiser is likely to use, not the listing's pro forma rents. This is where I see more people get tripped up. They do zero underwriting on a home before moving on it. Research is key to smart acquisitions, don't lean on a lender or appraiser. And make sure your contract contingency covers the rent side too, not only the value. If the appraised rents come in light at the very end, you want a clean way out of the contract.

    I'm a mortgage broker in Denver and invest, and the duplex vs. triplex point is the one I see buyers miss most.

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