The self-sufficiency test asks whether a triplex or fourplex could pay its own mortgage from rent. FHA takes the appraiser's market rent for every unit, including the one you'll live in, counts 75% of it, and requires that figure to cover the full monthly payment. It's a separate test from your debt-to-income ratio, and a 3 or 4 unit FHA loan has to pass both.
How the test is figured
- Add up the appraiser's market rent for all units, the owner's unit included.
- Take off 25% for vacancies, or the appraiser's vacancy factor if it's higher. HUD calls what's left net self-sufficiency rental income.
- Add up the full monthly payment: principal, interest, FHA's annual MIP, property taxes, insurance and any HOA dues.
- The payment divided by the net rent must be 100% or less.
FHA also requires 3 months of payments in reserves on 3 and 4 unit homes, and the loan has to stay within FHA's limit for the unit count. In most Florida counties the 3-unit limit is $837,700 and the 4-unit limit is $1,041,125.
A $450,000 triplex, run three ways
At $450,000 with 3.5% down, the base loan is $434,250, and the 1.75% upfront MIP brings it to $441,849.38. At a 5.75% rate that's $2,578.51 in principal and interest, plus $199.03 annual MIP, $356.25 in taxes and $410 in insurance, for a payment of $3,543.79.
| Rents of $1,600 a unit | Rents of $1,550 a unit | $1,550 rents at a $440,000 price | |
|---|---|---|---|
| Market rent, all 3 units | $4,800.00 | $4,650.00 | $4,650.00 |
| 75% of rent | $3,600.00 | $3,487.50 | $3,487.50 |
| Monthly payment | $3,543.79 | $3,543.79 | $3,474.15 |
| Result | Passes by $56.21 | Short by $56.29 | Passes by $13.35 |
The middle column shows how thin the margin can be: $50 less rent per unit flips the result. The third column shows the fix. Negotiating the price down $10,000 lowers principal, interest, MIP and taxes enough (to $2,521.21, $194.61 and $348.33) for the same rents to pass.
When the numbers come up short
- Negotiate the price. Every dollar off lowers four parts of the payment at once.
- Lower the insurance. A wind mitigation inspection on a Florida triplex can earn credits that cut the premium.
- Buy down the rate. FHA lets the seller pay up to 6% of the price toward closing costs and discount points, and a lower rate shrinks principal and interest.
- Use a Conventional loan. It has no self-sufficiency test, takes 5% down on 2 to 4 units, and asks for 6 months of reserves.
- Look at a duplex. Two-unit homes aren't subject to the test.
Run any triplex or fourplex through the house hacking calculator and it applies the self-sufficiency test for you. Before you write an offer, call AAA Capital Funding at 888-601-8344 and we'll check the rent schedule, the payment and your reserves together.