When purchasing a multi-family property (specifically 3- or 4-unit homes) using an FHA loan, there is a specific requirement known as the Self-Sufficiency Test that must be met. This test ensures that the property generates sufficient rental income to cover its mortgage costs.

According to FHA guidelines, the Self-Sufficiency Test states that the gross rental income from all units of the property—after accounting for an estimated vacancy factor—must be equal to or greater than the total monthly mortgage payment, which includes the principal, interest, property taxes, and insurance (often referred to as PITI). This is crucial because the FHA wants to ensure that the investment is financially viable and that the property can maintain its value through adequate rental income (source: A and N Mortgage, Gomez Lakeside Mortgage).

Additionally, the rental income generated should cover not just the mortgage payment but also other monthly expenses associated with owning the property. This way, the borrower is protecting themselves from financial strain due to unexpected costs that could arise from property ownership (source: Jason Lends).

In summary, when seeking to finance a multi-family home with an FHA loan, it's essential for the property to pass the Self-Sufficiency Test, ensuring that the generated rental income can adequately cover the mortgage and other expenses. This test safeguards both the borrower and the lender, making it a critical aspect of the FHA loan approval process for multi-family properties.

Sources

FHA Self Sufficiency Test For 3-4 Unit Properties - A and N MortgageMulti family home FHA loan : r/realestateinvesting - RedditUnderstanding FHA 2 - 4 Unit Guidelines: A Comprehensive GuideFHA Multi-Unit Properties (3 - 4 Units) - Self Sufficiency Test[PDF] Revisions to Rental Income Policies, Property Eligibility, and ... - HUDA Guide to the Self-Sufficiency Rule for FHA Purchases - Jason LendsUsing an FHA loan on a multi family unit? - BiggerPockets

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