FHA Financial Analysis & Planning 2 — Questions and Answers
Question 1: An FHA appraiser is analyzing a property with a gross monthly rent of $2,400. Using the Gross Rent Multiplier (GRM) method and a market GRM of 140, what is the indicated value?
- $336,000 (Correct answer)
- $288,000
- $312,000
- $360,000
Correct answer: $336,000
GRM × Monthly Rent = Value; 140 × $2,400 = $336,000.
Question 2: When calculating Net Operating Income (NOI) for an FHA appraisal, which of the following is NOT deducted from Effective Gross Income?
- Mortgage debt service (Correct answer)
- Property taxes
- Insurance premiums
- Management fees
Correct answer: Mortgage debt service
Mortgage debt service is a financing expense deducted below NOI, not from EGI to arrive at NOI.
Question 3: A property has a potential gross income of $60,000, a vacancy and collection loss of 8%, and operating expenses of $22,000. What is the NOI?
- $33,200 (Correct answer)
- $38,000
- $31,200
- $35,200
Correct answer: $33,200
EGI = $60,000 × 0.92 = $55,200; NOI = $55,200 − $22,000 = $33,200.
Question 4: In FHA appraisal for income properties, the overall capitalization rate is best described as:
- The ratio of NOI to property value (Correct answer)
- The ratio of debt service to property value
- The ratio of gross income to loan amount
- The ratio of net income to equity
Correct answer: The ratio of NOI to property value
The overall cap rate (OAR) equals NOI divided by property value and reflects the entire property's income return.
Question 5: Which FHA guideline addresses the requirement that an appraiser must analyze the subject property's income potential relative to its market area when appraising a two- to four-unit property?
- HUD Handbook 4000.1 (Correct answer)
- FNMA Form 1004
- USPAP Standard 1
- HUD Mortgagee Letter 2010-25
Correct answer: HUD Handbook 4000.1
HUD Handbook 4000.1 governs FHA single-family appraisal requirements including income analysis for small income properties.
Question 6: A property generates an NOI of $28,500 annually. If the market capitalization rate is 6.5%, what is the indicated value using direct capitalization?
- $438,462 (Correct answer)
- $185,250
- $456,000
- $420,000
Correct answer: $438,462
Value = NOI ÷ Cap Rate = $28,500 ÷ 0.065 = $438,462.
Question 7: When developing a cash flow forecast for an FHA-insured multifamily property, which projection period is most commonly used in discounted cash flow analysis?
- 10 years (Correct answer)
- 5 years
- 15 years
- 20 years
Correct answer: 10 years
A 10-year holding period is the most common standard for DCF analysis in income-property appraisal.
FHA Financial Analysis & Planning 2
An FHA appraiser is analyzing a property with a gross monthly rent of $2,400.
Using the Gross Rent Multiplier (GRM) method and a market GRM of 140, what is the indicated value?