Fair Market Rent 3-4 unit FHA Self Sufficiency

[Amy Perkins]

Hi all!

I'm a mortgage broker and have a client that made an offer on a quadplex with minimum down payment on an FHA loan. I'm concerned we won't pass the FHA's self sufficiency test. We need to have the total PITI payment to be under 75% of the appraiser's estimate of fair market rent for all units. Mortgage payment is going to be around $4100, so we'd need roughly $5500/ month in rental income to qualify.

The property is made up of 3 1BR/1BA unit and one 2BR/1BA units.

I found on Huduser.gov the Fair Market Rent Documentation System linked below, which allows you to see a specific FMR based on zip code.

FY 2023 $fmrtype$ Fair Market Rents Documentation System — Select Geography

If we use this system, we'd have around $1400/ month for each 1 BR and $1700 for the 2BR.

As an appraiser, would/ could you use this number in determining Fair Market Rent? Or would you calculate it? Would existing leases play in?

If we can use HUD's Fair Market Rent number, we are good. If it's based on something else, I'm concerned.

Any guidance is massively appreciated

We usually determine actual and market rent. There are reserves for replacements that get deducted as well. Like roof and appliances etc...

 

[Surf Cat]

Why would you go about purchasing an income property "without" knowing what the income is?

If the borrower doesn't know about the income, I'm going to make an assumption they haven't calculated the operating expenses.

Seems like a gamble. Hope it works out....

 

[jay trotta]

Over the years I have used that system a lot and you need to also review how they apply their yearly calculations. Additionally, I have found they include and give weight to the metropolitan area and/or use a particular county. In my area this may include 5-20 different towns and therefore the need to drill down to the local market area.

What needs to be applied is the Local Rental data, so that you can make an informed decision for the local market. Whether for S-8 or not, local (Town-MLS) should provide a more supportable. data calculation. Using the table you provided, you may find MLS data produces a slightly higher or lower rental figures and knowing the market area very well, helps in the decision-making process.

 

[Tom D]

on a 2-4 family, or rent schedule, FHA wants actual addresses with actual rents on the grid. any other info could be used for support.