January 4, 2016
Recently a reader got in touch with us in the comments section to ask the following question about FHA loans, identity-of-interest transactions, and whether a domestic partnership could require additional consideration for assuming an FHA loan or applying to buy a home from a domestic partner:
“I have lived in a residence with my boyfriend for the last 3 years. He currently owns the property and is going to be moving. I would like to stay in the residence and purchase his home from him. I have resided here rent free (on paper anyway no lease agreement). He has paid his mortgage, while I have paid all of the other household expenses (utilities, groceries, etc).
Question #1: Am I considered a tenant of the property even though there is no written lease agreement or proof of rent paid?
Question #2: Does this situation fall under the Identity of Interest guidelines, ultimately requiring a larger down payment on an FHA loan?”
The FHA defines “identity of interest transactions” as follows in HUD 4000.1:
“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.”
Family members can be defined as an actual blood relative, a spouse or domestic partner, or even a third party who has a familial relationship to the borrower similar to an actual blood relative or legally married spouse.
Such transactions are governed by the following rule in HUD 4000.1:
“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.”
There may be exceptions permitted to the above including (but not limited to) the following:
“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.”
To avoid the higher down payment that identity of interest transactions require, a borrower would have to be able to document the “tenant” relationship he or she has with a spouse or domestic partner.
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: