Identity of Interest transactions (aka Non-Arms length transactions)
(Current as of ~2003.... I'm searching for any updates to this & will post what I find)
For reference, in regards to FHA loans purchasing property from relatives or other similar situations...
Non-Arms Length Transactions:
Non-Arm Length Transactions, or as FHA refers to them as Identity-of-Interest Transactions on principal residences are restricted to a maximum loan-to-value of 85%. Identity-of-Interest is defined as a transaction between family members, business partners or other business affiliates. However, maximum financing above 85% LTV is permissible under the following circumstances:
- A family member purchasing another family member’s principal residence.
- An employee of a builder purchasing one of the builder’s new homes or models as a principal residence.
- A current tenant purchasing the property that he or she has rented for at least 6 months predating the sales contract.
- A lease or other written evidence must be submitted verifying occupancy.
- Sales by corporations that transfer employees out of an area, purchase the transferred employee’s home and then resell to another employee.
If a property being sold from one family member to another is the seller's investment property, the maximum mortgage is the lesser of either:
- 85% of the sum of the appraised value plus the allowable percentage of closing costs OR
- 97/95/90% of the sales price plus or minus required adjustments including the allowable closing costs.
The 85% limit may be waived if the family member has been a tenant in the property for at least 6 months predating the sales contract. A lease or other written evidence must be submitted verifying occupancy.