HUD HOC Reference Guide

Net rental income (of three and four unit properties) must be equal to or greater than the projected monthly mortgage payment (PITI/MMI) meaning that the property must be self-sufficient. Net rental income is defined as the "appraiser's estimate" of fair market rent from ALL units (including the unit chosen by the borrower for occupancy) LESS Vacancy, Collection and Maintenance Cost Factors.

For qualifying purposes, projected rents (of rental units only, not the owner occupied unit(s)) may be considered as part of the borrower's gross qualifying income only after deducting the appropriate HOC vacancy and maintenance factor. Rental income may not be used as a direct "offset" to the mortgage payments.

Note: When purchasing three-and four-unit properties, borrowers must have 3-months verified PITI reserves after closing and those reserves cannot be derived from a gift.

Please see: HUD Handbook 4155.1, REV-5, CHG-1, Paragraph 2-7m