May 16, 2013
One common question about FHA home loans involves the FHA rules about who can sell to whom. When it comes to a home owner selling property to someone they do not know, the rules are simple. FHA guidelines don’t allow a home owner with an “identity of interest” in the outcome of the sale to sell to an FHA borrower AND be a co-signer or co-borrower on the mortgage.
What does that mean?
According to HUD 4155.1 Chapter Four Section A, “A party who has a financial interest in the mortgage loan transaction, such as the seller, builder, or real estate agent, may not be a coborrower or a cosigner.”
You can’t be both the buyer AND the seller. But what about in cases where the seller is a relative? There are plenty of situations where the home owner could be helping out a relative, spouse, in-laws, etc. Does the FHA provide an exception to the Identity of Interest rule in such cases?
According to Chapter Four, yes. “Exceptions may be granted when the party with the financial interest is related to the borrower by blood, marriage, or law.”
This would be handled on a case-by-case basis, but that said, the FHA also requires the “individual signing the loan application must not be otherwise ineligible for participation in the mortgage loan transaction” and may also be required to meet other criteria. “Non-occupying coborrowers or cosigners must have a principal residence in the U.S., unless exempted
• due to military service with overseas assignments, or
• as U.S. citizens living abroad.”
There are other rules which may or may not apply in these circumstances. For example, HUD 4155.1 says, “If two or more parties have an ownership interest in the property, but only one of the parties is applying for the loan (and credit qualifies for the loan on his/her own), it is not required that the non-applicant individual(s) execute the mortgage note and security instrument.”
For more information or help with Identity of Interest transactions, contact your loan officer or the FHA directly at 1-800 CALL FHA for advice and assistance.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
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.
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