The FHA Self-Sufficiency Test in Florida: Why Triplexes and Fourplexes Fail It
The FHA self-sufficiency test Florida buyers of three and four units must pass requires 75 percent of all units' rent to cover the full payment. High prices and insurance make most South Florida fourplexes fail. Here is the math and the workarounds.
Educational content only. This article is for informational purposes and does not constitute financial, legal, or lending advice. Loan programs, rates, and eligibility requirements change frequently. Consult a licensed mortgage professional before making any borrowing decision. Mortgage Capital | NMLS# 1859012 | Licensed in Florida.
The FHA self-sufficiency test Florida buyers of three and four unit properties must pass requires 75 percent of the market rent from all units to cover the full mortgage payment including taxes and insurance.
South Florida prices and insurance make most fourplexes fail it. Our guide to fourplex financing in Florida covers the alternatives.
The rule
For FHA loans on three or four units, the net rental income from all units, at 75 percent of market rent, must equal or exceed the total PITI.
The HUD handbook sets it.
Including the unit you will occupy.
Two-unit properties are exempt.
The appraiser's rent schedule supplies the figures.
The math
Sum the market rent for all units; multiply by 0.75.
Compute the full payment: principal, interest, mortgage insurance, taxes, insurance, dues.
See our guide to what PITI is in Florida.
If the first number is smaller, the property fails.
Your income does not enter the test.
Why South Florida fails
Prices per unit are high relative to rents.
Insurance on a fourplex is large.
See our guide to Florida homeowners insurance cost.
Property taxes reset at purchase.
The payment outruns 75 percent of rent on most listings.
What passes
Lower-priced fourplexes in Central Florida, the Treasure Coast and older neighbourhoods with strong rents.
Properties with below-market prices.
Large down payments that shrink the payment.
Rate buydowns that lower the payment.
See our guide to mortgage rate buydowns versus points in Florida.
Workaround: a larger down payment
FHA allows more than 3.5 percent down.
A larger down payment lowers the payment until the test passes.
See our guide to loan-to-value in Florida.
At some point conventional becomes cheaper.
Run both.
Workaround: conventional
Conventional loans on three and four units have no self-sufficiency test.
See our guide to 5 percent down conventional multifamily in Florida.
Five percent down on an owner-occupied two to four unit at the agencies.
Rental income counts at 75 percent toward your qualifying, not as a property test.
Often the answer in South Florida.
Workaround: VA
VA has no self-sufficiency test on multi-unit purchases.
See our guide to VA loan requirements in Florida.
Zero down on a fourplex for an eligible veteran.
Rental income counts with a landlord history or a management plan at some lenders.
The strongest multi-unit loan available.
Workaround: a duplex
Two units skip the test.
See our guide to buying a duplex in Florida.
Easier to find, easier to insure, easier to pass.
The first multifamily for most.
Scale later.
The rent schedule
The appraiser estimates market rent per unit from comparable rentals.
See our guide to low appraisals in Florida.
Below-market leases in place do not raise it.
A strong rental market helps.
You cannot supply your own figures.
Insurance in the test
The full premium on a three or four unit structure sits in PITI.
See our guide to wind mitigation inspections in Florida.
Credits lower it; an older roof raises it.
Get the quote before the offer.
It can decide the test.
Taxes in the test
Lenders use the reset tax estimate, not the seller's bill.
See our guide to property tax estimates for new buyers in Florida.
Homestead on your unit reduces it slightly.
The rest is non-homestead.
A high-tax city fails more properties.
Mortgage insurance in the test
FHA's annual premium is part of the payment.
See our guide to PMI versus MIP in Florida.
It raises the number rent must cover.
Conventional PMI is often lower for good credit.
Another point for conventional on a borderline file.
Reserves
FHA requires three months of reserves on three and four units.
See our guide to emergency funds for homeowners in Florida.
Conventional requires reserves too.
Vacancy across three rented units is a real exposure.
Keep more.
Occupancy
You must live in one unit for a year on any owner-occupied programme.
See our guide to house hacking in Florida.
The test applies regardless of your plan to move later.
After a year, all units can be rented.
The loan stays.
Finding properties that pass
Ask the agent for the rent roll and run the test before touring.
See our guide to cash-on-cash return in Florida.
A property that passes the test usually cash-flows too.
A property that fails may still be a fine conventional purchase.
The test is a filter, not a verdict.
A worked example
A fourplex where 75 percent of total market rent falls short of the FHA payment by a few hundred dollars.
FHA fails.
A conventional loan at five percent down with lower PMI passes qualifying on the buyer's income plus 75 percent of the rented units' income.
The same property, a different programme, a closing.
The buyer occupies one unit and files homestead on it.
Running it yourself
Ask the listing agent for the rent roll or estimate market rent from comparable listings.
Get an insurance quote and the reset tax estimate.
Compute the FHA payment at today's rate with mortgage insurance.
Compare 75 percent of rent to the payment.
Five minutes saves a wasted application.
Where to start
Get the rent roll and an insurance quote and run the 75 percent test.
If it fails, price the conventional five percent down route.
Then get a pre-approval on the programme the property supports.