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FHA Self-Sufficiency Calculator | 3-4 unit properties

Jim Quist Apr 7, 2024 5:00:00 PM
fha loan 3-4 units self-sufficiency test
FHA Self-Sufficiency Calculator | 3-4 unit properties

An FHA loan is a good option for financing the purchase of a multi-unit property. However, 3-4 unit properties must be self-sufficient, which means they must have a positive cash flow. 

Read this article to learn about FHA's self-sufficiency requirements and pick up a few tips for increasing the likelihood that the three or four-unit property you want is self-sufficient. Then, use our FHA Self-Sufficiency Calculator to run some tests.

After that, check out the following related articles:


What is the self-sufficiency test for FHA loans?

FHA's self-sufficiency test requires that the rental income from a 3-4 unit covers the property's expenses, including the housing payment. This test ensures that the property generates enough rent to be a sound investment and that you can make the mortgage payments and other obligations.

To pass the self-sufficiency test, the net rental income for the property must be equal to or greater than the PITI.

Here are a few definitions:

  • Gross rental income is the total monthly rent generated by all the units, including the one you will live in, before subtracting any expenses. 
  • Net rental income is 75% of the gross rental income.  
  • PITI stands for principal, interest, taxes, and insurance. The monthly housing payment includes the loan, property taxes, homeowner's and mortgage insurance, and association fees.


Let's say you plan to buy a three-unit property, live in one unit, and rent out the other two. The following steps will help you estimate the property's cash flow. 

  1. Add the estimated rent for all three units to get the gross rental income. Include rent for the unit you'll occupy.
  2. Multiply the gross rental income by 75% to get the net rental income.
  3. Subtract the PITI from the net rental income to determine if the property has a positive or negative cash flow.


To pass the self-sufficiency test, the property must have positive cash flow. In other words, the net rental income must equal or exceed the PITI. 


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How do lenders calculate FHA's Net Self-Sufficiency Rental Income?

Lenders use the Net Self-Sufficiency Rental Income (NSSRI) formula to determine whether a buyer can afford to purchase and maintain a 3-4 unit property with an FHA mortgage. 

  1. Calculate the monthly housing payment, PITI.  (Mortgage Calculator)
  2. Calculate the monthly net rental income. Use the property appraiser's opinion of fair market rent from all units, including yours. Then subtract 25% or the vacancy factor provided by the appraiser, whichever is greater. 
  3. Determine if the property is self-sufficient. The PITI divided by the net rental income may be at most 100 percent.


You buy a $600,000 three-unit property, make a 3.5% down payment, and take out a $589,132 FHA loan.


1. Calculate the monthly housing payment (PITI):
    1.    $3,345 Principal & interest @ 5.5%, 30-year fixed
    2. + $750.00 Real estate taxes
    3. + $140.00 Homeowner's insurance
    4. + $264 FHA mortgage insurance premium
    5. = $4,499 PITI

2. Calculate the monthly net rental income:
    1.    $6,000 Gross rental income from the appraiser's opinion of fair market rent
    2. - $1,500 25% vacancy factor
    3. = $4,500 Net rental income

3. Determine if the property is self-sufficient: 
    1.    $4,500 Net rental income 
    2. ÷ $4,499 PITI
    3. = 100%


The property passes the self-sufficiency test in the above example because the net rental income exceeds the PITI. 


FHA Self-Sufficiency Calculator

Use our FHA Self-Sufficiency Calculator to see if the property you're considering passes the test.   

Sweeper Icon

Total Loan Amount: 
  • +  (Base Loan Amount)
  • +  (UFMIP)
Total Monthly Payment: 
  • +  (Principal & Interest)
  • +  (Mortgage Insurance)
  • +  (Property Tax)
  • +  (Homeowner's Insurance)

Is the property self-sufficient?

  •  (Net Rental Income)
  •  (Ratio)


See current FHA rates, payments, and closing costs. Get the details to know what to expect when buying a 3-4 unit property.


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How do I know if a 3-4 unit property is self-sufficient before offering to buy it? 

Before offering to buy a three- or four-unit property, do your best to determine whether the property has a positive cash flow. Choosing an experienced lender and real estate agent and consulting with them can help you make informed decisions and avoid potential issues with your mortgage application. 

First, get a verified mortgage pre-approval letter from a mortgage lender. Verified is more reliable than unverified pre-approvals from big banks and internet lenders. For example, at NewCastle Home Loans, a certified mortgage underwriter who makes the final loan decision reviews your credit and financial information upfront. This way, you feel confident about buying a multi-unit home. 

Next, connect with a real estate agent. A good buyer's agent helps you estimate rental income for a multi-unit property by researching comparable rents.  

When considering a specific multi-unit property, follow up with your lender. The lender calculates the monthly housing payment, analyzes the rental income potential, and tests the property's self-sufficiency.

You can view current rates, payments, and closing costs on our website 24/7—access information when you need it most to take advantage of all opportunities.


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What are my options when a 3-4 unit property fails FHA's self-sufficiency test?

If a 3-4 unit property fails FHA's self-sufficiency requirements, you have several options.

Look for another property. If the property does not meet FHA's requirements and is not financially viable, consider looking for another property that meets your investment goals and financing requirements.

Use a different loan program. Conventional mortgages don't require a self-sufficiency test. However,  they may require a larger down payment and restrict the rental income you can use to qualify for the loan.

Increase the rental income. Review the appraiser's opinion of fair market rent from the appraisal report and compare it to your real estate agent's research. If the appraiser missed comparable rents, ask the lender to review your agent's market analysis or supporting documentation. With supporting documents, the lender can appeal the appraisal, increase the net rental income, and approve the loan.

Reduce the PITI. Review the property's expenses and look for ways to reduce them. For example, lower the loan amount, find a cheaper homeowner's insurance provider, or lower the mortgage interest rate.

  • Pay discount points upfront to lower the rate and payment. The amount of the discount and the corresponding reduction in the interest rate can vary depending on the lender and the specific terms of the loan. 
  • If you can't afford to pay discount points, consider asking for a seller credit. The seller can pay all or some of your closing costs, including discount points, up to 6% of the property's sales price.


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Jim Quist NewCastle Home Loans
President and Founder of NewCastle Home Loans. Jim has been in the mortgage business for 20+ years.

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