If you’ve looked into buying a duplex, triplex, or quadplex with an FHA loan, you probably have already discovered how good a deal these can be.
With just 3.5% down, you can become a homeowner and a landlord in one move. Live in one unit, and get your mortgage paid by your tenants.
And now, it’s about to get even better.
Thanks to the 2023 FHA MIP reduction effective March 20, 2023, you’ll be able to qualify for any home more easily when using an FHA mortgage. Here’s how.
Check your eligibility to buy a 2-4 unit home with FHA.
FHA MIP reduction 2023
FHA will reduce its monthly mortgage insurance by 0.30% (30 basis points) effective March 20, 2023.
This is a savings of $25 per month per $100,000 borrowed. On a $450,000 FHA loan, it saves you $112.50 per month.
There were no changes to the upfront MIP which remains at 1.75% of the loan amount for most loans.
Old FHA MIP prior to March 20, 2023 for 30-year loans
| Loan amount ≤ $625,500 | Loan amount > $625,500 | |
| 3.5-4.99% down payment | 0.85% | 1.05% |
| 5%+ down payment | 0.80% | 1.00% |
New 2023 FHA MIP for 30-year loans
| Loan amount ≤ $726,200 | Loan amount > $726,200 | |
| 3.5-4.99% down payment | 0.55% | 0.75% |
| 5%+ down payment | 0.50% | 0.70% |
Note that 15-year FHA mortgages come with even lower monthly MIP, but very few people opt for anything but a 30-year, especially when buying a multi-unit.
FHA savings in dollars
Here are some example savings you’ll see with lower MIP
| Loan Amount | Monthly Savings |
| $200,000 | $50 |
| $300,000 | $75 |
| $450,000 | $112.50 |
| $600,000 | $150 |
A reduction of 0.30% or 30 basis points might not sound like much, but it’s a significant amount monthly, especially at the higher loan amounts needed for multi-unit properties.
Why this is such a big deal for 3-4 unit properties
In recent years, FHA has made it more difficult to buy a 3-4 unit home.
It has imposed the “FHA self-sufficiency test” rule. Under this rule, a 3- or 4-unit home must generate enough rent (after a vacancy factor) to support the full payment including principal, interest, taxes, insurance, and association dues (PITIA).
For example:
| Market monthly rent | $4,000 |
| Vacancy factor | 25% |
| Net rent | $3,000 |
| Maximum PITIA payment | $3,000 |
Starting in March 2023, it will be easier to meet this requirement because the monthly payment will be significantly reduced.
Related: FHA Self Sufficiency Test + Calculator
Example: How reduced FHA MIP will make more properties eligible
Here’s an example of how the lower 2023 FHA MIP can help you pass the 3-4 unit self-sufficiency test.
| Home Details | Old FHA MIP | New FHA MIP |
| Purchase price | $550,000 | $550,000 |
| Loan amount with upfront MIP | $540,038 | $540,038 |
| Principal & interest | $3,238 | $3,238 |
| Taxes/insurance/dues | $475 | $475 |
| Monthly MIP | $383 | $248 |
| Total payment | $4,095 | $3,961 |
| Net rent | $4,000 | $4,000 |
| Passes self-sufficiency test? | No | Yes |
It remains to be seen how many more FHA buyers will find eligible 3-4 unit properties. When the numbers are tight, the relatively small MIP change could make a very large difference.
What about duplexes and single-family?
Duplexes and single-family homes are not subject to self-sufficiency rules. So they don’t have to pass that extra layer of guidelines. However, the buyer still must qualify for the payment, and lower MIP will help them do just that.
Less expensive monthly mortgage insurance will bring your debt-to-income ratios (DTI) down. Most FHA loans require a ratio of 50% or less, meaning that no more than 50% of your before-tax income can go toward the mortgage payment.
If your DTI is 51%, chances are that the lower MIP will bring it into an acceptable range.
The MIP reduction is a huge win for all FHA buyers.
How do I get reduced FHA MIP?
New MIP rates go into effect on March 20, 2023. “Case numbers” on or after that date will automatically come with lower MIP.
A case number is FHA’s way of tracking an application and property.
Be careful if you apply before that date. Make sure your lender does not pull an FHA case number. If they do, you are stuck with former, higher MIP rates.
Wait until March 20 to give your lender a property address. It’s okay to request a pre-approval before that date. Just make sure not to give the lender the property address. Without a property, the lender can’t assign a case number.
Reduced FHA MIP will be a huge advantage
All FHA buyers should be very happy about reduced MIP. It will help anyone using an FHA loan qualify more easily.
But a distinct advantage is coming to those looking for a triplex or quadplex. Even if they couldn’t find a property that passes the self-sufficiency test, they might now.
Start here to see if you can buy a 3-4 unit home with FHA.
