The maximum mortgage for three and four unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100 percent, regardless of the occupancy status.

Form HUD 92561, Borrower's Contract with Respect to

Hotel and Transient Use of Property is required at application for all multi-unit properties.

Note: The calculations described in the remainder of this topic are in addition to the calculations found in HUD 4155.1 2.A.

The monthly mortgage payment calculation for three and four unit properties includes the following:

• principal
• interest
• taxes
• insurance (Principle, Interest, Taxes, and Insurance - PITI), including monthly mortgage insurance, and
• homeowner association dues computed at the note rate, if applicable.

Reference: For more information on the maximum mortgage amounts, see

• HUD 4155.1 2.A.1, and
• HUD 4155.1 2.A.2.

Net rental income for three and four unit property is calculated using the following formula:

• the appraiser's estimate of fair market rent from all units, including the unit the borrower chooses for occupancy, and
• minus the greater of the
• appraiser's estimate for vacancies, or
• vacancy factor used by the jurisdictional HOC.

This net rental income calculation is used to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on

• income
• credit
• cash to close, and
• projected rents received from remaining units.

Projected rent may only be considered gross income for qualifying purposes. It cannot be used to offset the monthly mortgage payment.

For three- and four-unit properties, the borrower must have personal reserves equivalent to three months' PITI after closing on purchase transactions. Reserves cannot be derived from a gift.

Reference: For information on

• mortgage reserves, see
• HUD 4155.1 4.E.5.d, and
• HUD 4155.1 4.F.3.b, and
• TOTAL Scorecard and mortgage reserves, see the TOTAL Mortgage Scorecard User Guide at http://www.hud.gov/offices/hsg....