July 30, 2013
Here’s a question about FHA loans that isn’t as common as some, but still comes up often enough to discuss here: can a family member purchase a residence from another family member using an FHA mortgage?
FHA home loans have rules designed to protect the integrity of the loan process–FHA loan rules in HUD 4155.1 say that some FHA loan transactions may have different or lower loan amounts depending on the circumstances of those loans. “Certain types of loan transactions affect the amount of financing available to a borrower and how the maximum mortgage amount is calculated. These transactions include
- identity-of-interest
- properties with non-occupying coborrowers
- three- and four-unit properties
- properties where a house will be constructed by a borrower on his/her land, and/or as a licensed general contractor
- payoffs of land contracts, and
- transactions involving properties under construction, or less than a year old.”
One such case of “identity of interest” transactions affecting the FHA loan amount? Family members selling homes to other family members. From Chapter Two, Section B of HUD 4155.1:
“A family member purchases another family member’s home as a principal residence. If the property is sold from one family member to another and is the seller’s investment property, the maximum mortgage is the lesser of
• 85% of the appraised value, or
• the appropriate LTV factor applied to the sales price, plus or minus required adjustments.
Note: The 85% limit may be waived if the family member has been a tenant in the property for at least six months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy.”
So we can see that FHA loan rules DO permit one family member to sell a home to another relative using an FHA insured mortgage loan–and if the borrower meets the criteria above, the 85% limit can be waived. This is an important detail for those who meet the conditions–for more information on how these waivers work, speak to a loan officer.
Do you have questions about FHA 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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