April 20, 2016
For some FHA home loans, a higher down payment may be required when there is an “identity of interest” transaction. FHA loan rules in HUD 4000.1 define this as follows:
“An Identity-of-Interest Transaction is a sale between parties with an existing Business Relationship or between Family Members. Business Relationship refers to an association between individuals or companies entered into for commercial purposes.”An identity of interest transaction requires a 15% down payment unless the borrower qualifies for an exception.
With this in mind, let’s look at a recent reader question in our comments section.
A reader asks, “My wife and I went under contract on a house that is owned by her stepfather. We just found out yesterday about the FHA identity of interest certification. It is his rental property. Is there anything that we can do, legally to avoid the 15% down that it is saying we would need for our FHA loan now?”
FHA loan rules do provide certain exceptions to the identity of interest rule. According to page 154, exceptions may be made under the following circumstances:
“…if a Borrower purchases as their Principal Residence:
–the Principal Residence of another Family Member; or
–a Property owned by another Family Member in which the Borrower has been a tenant for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.”
FHA Loan Rules For Builders Employee Purchase
“The 85 percent LTV restriction may be exceeded if an employee of a builder, who is not a Family Member, purchases one of the builders new houses or models as a Principal Residence.”
FHA Loan Rule For Corporate Transfer
“The 85 percent LTV restriction may be exceeded if a corporation transfers an employee to another location, purchases the employees house, and sells the house to another employee.”
FHA Loan Rules For Tenant Purchase
“The 85 percent LTV restriction may be exceeded if the current tenant purchases the Property where the tenant has rented the Property for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.”
Borrowers should discuss their circumstances with the lender to see how FHA loan identity of interest rules may affect their transaction.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: