Since you found this item, it is likely that there is a problem with your FHA purchase and you are looking for solutions. Once there is a possible FHA situation, it is important to discuss the situation with an experienced lender. Fortunately, there are exceptions to the rules governing the identity of interests. In this article, we explain arm`s length FHA transactions that trigger identity of interest. Most importantly, we discuss exceptions to the FHA guideline and share the details in the FHA certification form. FHA loans give buyers the opportunity to finance with a down payment of just 3.5%. There`s even a $100 FHA down payment program, but did you know that there are FHA purchases that require a 15% down payment? Too often, this surprises buyers. This is difficult when these situations are not recognized early by a lender and the rules do not appear until late in the process. These primary residence purchases with a maximum LTV of 85% are known as FHA identity transactions. Also known as an arm`s length transaction.
The FHA defines this as a sale between parties with an existing relationship, such as transactions with the following: In the event of an employee moving, companies can buy and sell the employee`s current home. On occasion, the company may sell the employee`s home to another employee. This is allowed in the case of the minimum down payment, as it satisfies the exception for the identity of interest. Even in the case of a move of more than 100 miles, it is possible to have two FHA loans at the same time. A common event is a landlord choosing to sell an investment property to the current tenant. The FHA strictly applies the 6-month occupancy rule. Therefore, a tenant or other occupant who has lived in an apartment for less than six months must deposit 15% of the sale price. Whether for 1 to 5 months, the buyer must wait a full six months before executing a purchase contract.
The exception for the identity of interests thus comes into play if the buyer has lived in the house in question for more than six months. The FHA considers an employee of a contractor who is also a member of the builder`s family to be an identity of interest. Therefore, the 15% down payment is required, but an employee of a contractor who is NOT a family member can purchase a new home or model builder to LTV complete. This means only 3.5% deposit. As an additional incentive, the builder could also pay the employee/buyer`s closing costs! But what about situations where the seller is not a family member? Are there exceptions to the rules of identity of interests in such cases? Yes, in certain circumstances: family members` transactions are quite common. The FHA`s rules regarding the identity of interest require an increase in the down payment to 15% in these cases. However, there are two exceptions for family members. If the house for sale is currently the primary residence of the family member (seller), the family member only has to deposit 3.5% of the sale price. When reviewing and signing this form, it is strongly recommended not to ignore the importance of this certification. Lying on the form would be mortgage fraud, resulting in significant fines and penalties up to jail. Sometimes lenders jump the gun and lower the LTV to 85%.
There are several exceptions to the rules on identity of interest. In these cases, buyers can use the low deposit of 3.5% instead of 15%. Hopefully we will find solutions and don`t forget to contact an experienced FHA loan officer. There are exceptions, and you should definitely know which exceptions go into your home loan application. In this case, the word „interest“ refers to the seller`s interest in selling the home to the buyer because of a tenant-owner relationship, a business relationship or similar relationship. While there may be slight differences between lenders for this form, everyone has the basic information needed. Each form contains the name of the plaintiff, the address of the property, the definition of the identity of interests, the categories of relationships to be chosen, the federal warning against false claims and a signature line. Below is the selection of the borrower on the form.
Once an FHA buyer has completed it, each lender will attach the „FHA Identity of Interest Certification“ form and borrowers will confirm if there is a relationship with the seller of the home. Let`s hope that the transaction is not the first time that the subject is discussed between the buyer and the seller. Imagine arriving at that completion package page and learning that one of the above relationships causes a higher deposit! If you inquire about the relationship at closing, it can lead to a delay or even a rejection of the loan at the last moment. If you`re not sure how this could affect your home loan or if you`ll need to make a higher down payment, ask a participating lender to clarify what is expected from these types of transactions. What does it mean to have an „identity of interest“ when applying for an FHA home loan? This can be a problem if the borrower rented the property to buy with a seller`s FHA mortgage before applying for a home loan. This is not the only issue addressed in the rules of identity of interest – those who have family ties and buy or sell themselves may also need to understand the rules in this area. What if the buyer currently lives in the house? That is another issue of identity of interests, but that is where the second exception comes in. If another family member owns the property and the buyer has been a tenant for at least six months before the purchase agreement, an exemption for a deposit of 3.5% is allowed.
