November 9, 2015
Here’s a question that doesn’t come up that often, but is still an important aspect of the FHA loan program you might one day need to know: Are FHA home loans available for living trusts?
The new FHA single family home loan rules published in HUD 4000.1 address this issue. The rules state:
“The Mortgagee may originate a Mortgage for a living trust for a Property held by the living trust, provided the beneficiary of the living trust is a Cosigner and will occupy the Property as their Principal Residence, and the trust provides reasonable means to assure that the Mortgagee will be notified of any changes to the trust, including transfer of beneficial interest and any changes in occupancy status of the Property.”
Note the occupancy requirement, which is similar to the other FHA loan occupancy requirements for new purchase and refinance loans.
FHA loan rules set standards for these transactions. HUD 4000.1 states:
“The name of the living trust must appear on the security instrument, such as the Mortgage, deed of trust, or security deed. The name of the individual Borrower must appear on the security instrument when required to create a valid lien under state law. The names of the owner-occupant and other Borrowers, if any, must also appear on the Note with the trust.”
FHA loan rules in this section add that the name of the individual borrower, “is not required to appear on the property deed or title”.
FHA loan rules permit this type of loan transaction, but not all lenders may choose to offer it. You may need to shop around for a lender to determine what your options might be in your housing market. In the same way that not all participating lenders offer new purchase or refinance loans for mobile homes, or may choose not to offer construction loans depending on the nature of the industry at a given time, living trust loans may or may not be on offer.
Such transactions may also be affected by state law–FHA loan rules do not override or otherwise interfere with the laws of your state.
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
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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