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Multi-Unit Purchase Using FHA Financing

Thinking of purchasing a three or four unit residential building using FHA financing? It’s a great opportunity. FHA allows one-unit to four-unit purchases for only 3.5% down payment. FHA defines a three or four unit property as “a single family residential property with three or four individual dwellings”.

There are two basic differences from a financing an FHA one or two-unit property versus an FHA three or four-unit property.

With a one or two unit FHA purchase there are no cash reserve requirements or self-supporting guideline. With a three or four unit purchase there is a minimum of three months PITI needed for cash reserves in addition to the funds required to close. These reserves need to be the borrowers own funds and cannot be gifted.

The second difference is the need to establish the net “self-sufficiency” of the rental income for the three or four-unit property. (IMPORTANT NOTE TO READER: Check your rents prior to writing a contract at (

Net “self-sufficiency” is calculated by adding the fair market rents for all units including the owners unit based on the appraiser’s opinion of the fair market rents. Multiply total fair market rents by 75%. The total has to be equal to or be greater than the PITI payment for the three or four-unit building.

The appraiser also calculates their own estimate for vacancy, maintenance, deferred maintenance, and mechanical depreciation. The lower of the appraisers calculation or 75% of the fair market rents is used to determine the maximum allowed PITI. See the example below:

To access the HUD Handbook 4000.1 click here.

Total appraiser opinion for vacancy and maintenance $3475. In this case $3475 is subtracted from $3300 evidencing the building is self-supporting by $175. (IMPORTANT NOTE TO READER: In this case if this property was a 3-unit it would NOT qualify under the FHA self-sufficiency guidelines.)