August 23, 2016
A reader asks, “I am intending on purchasing a home from my boyfriend’s father. He bought the home for 70k and he is willing to sell it to me for 75k. We are in no way related. Is our relationship an identity of interest?”
The “identity of interest” issue arises when a family member wants to sell a property to another family member who is using an FHA mortgage to buy the home. An identity of interest transaction can also be between two people who are business associates. HUD 4000.1 defines an identity of interest transaction 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.”
Why does HUD 4000.1 discuss this? Because there is a higher down payment required in such cases, which can also include a tenant purchasing property from a landlord:
“The maximum LTV percentage for Identity-of-Interest transactions on Principal Residences is restricted to 85 percent. The maximum LTV percentage for a transaction where a tenant-landlord relationship exists at the time of contract execution is restricted to 85 percent.” That means a 15% down payment would be required. However, FHA loan rules in HUD 4000.1 also make exceptions for this:
“The 85 percent LTV restriction may be exceeded 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.”
Also, “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 is required as documentation of this.
The reader question mentions the parent of a significant other. FHA loan rules do not address this situation, but individual lender standards might.
A reading of HUD 4000.1 seems to indicate that in general, the situation described in the reader question might not be an identity of interest transaction, but lender standards would apply in addition to FHA loan rules. That’s why it is best to have a conversation with the loan officer to see what may apply in a given situation where FHA loan rules are not specific.
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: