Thursday, May 8, 2008

FHA Tip Max Financing not always allowed on 3-4 unit properties

We have been talking about transactions that do not qualify for maximum financing for FHA programs. There are some situation when a owner occupied 3-4 unit will not qualify for max financing. According to the 4155...
Three- and Four-Unit Properties. Regardless of occupancy status, the property must be self-sufficient (i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent). The mortgage calculations described below are in addition to the calculations detailed in paragraphs 1-6 and 1-7.
1. The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners' association dues, computed at the note rate (no consideration for buydowns may be given).
2. Net rental income is the appraiser’s estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less the appraiser’s estimate for vacancies or the vacancy factor used by the jurisdictional HOC, whichever is greater.
This calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment.
3. The borrower must have reserves equivalent to three months' PITI after closing on purchase transactions. Reserves cannot be derived from a gift