FHA Appraisal Identity of Interest

[spittman]

not arms length, keep it simple, Where in the world did you come up with that non arms length requires a higher down payment in FHA????

It's another one of those FHA rules. 3% down for arm's length, 15% down for non (not those exact words, but something like that ...)

non-arms length transaction they will not be able to finance that amount with an FHA loan.

It's not a deal killer. There are many exceptions and ways around this. Happens all the time. Lender may already know and have all the paperwork ready. Assuming the tenant is either family OR has lived at the residence for at least 6 months, the limitation does not apply. I wouldn't be too concerned about it unless there was something else funky about the contract that would indicate a possible illegal flip, but even then ... just state the facts.

 

[J Grant]

Interesting, but WHO CARES what a borrower may need to put down or if deal is killed if they don't.

If a SC is not AL identify the parties and why it is not AL. IF the terms of non AL look like it influenced price, analyze/comment. Then proceed to appraise the property.

 

[Renee Healion]

You say The End a lot lately.
lol

 

[J Grant]

You say The End a lot lately.
lol

must be my subconscious...or just losing patience lol...

 

[Honey West]

When I write something that I think could be controversial to a reader or subject to argument or just various alternative interpretations, I write out the logic: the question was this, I researched that, and arrived at the following conclusion. You could write what you basically have expressed here. If someone disagrees, they will appear in short order to tell you so , and they should cite their reasoning. Your appraisal is for MV, which you will have done. If there is some good reason why your logic was flawed in reporting this one matter, then you can just revise that part easily.

Or, you could call the FHA field office for your region and ask. And please post it, if you do.

It's another one of those FHA rules. 3% down for arm's length, 15% down for non (not those exact words, but something like that ...)



It's not a deal killer. There are many exceptions and ways around this. Happens all the time. Lender may already know and have all the paperwork ready. Assuming the tenant is either family OR has lived at the residence for at least 6 months, the limitation does not apply. I wouldn't be too concerned about it unless there was something else funky about the contract that would indicate a possible illegal flip, but even then ... just state the facts.

View attachment 41999

Is this from the most current handbook, revised this year? I don't claim to be an expert, but I pored over the handbook and what I gathered was that if a tenant had lived there less than 6 months, they would be ineligible period. If they had lived there more than 6 months, then they fell into the Identity of Interest Category. I will definitely let you know what I learn, as I submitted the report tonight, with explanations of my reasoning, citations for the definitions. The issue only came to my attention as I wanted to be accurate about whether or not it was Arms-length..

 

[glenn walker]

not arms length, keep it simple, tenant is buying so what happens often. Just explain. Where did you come up with that non arms length requires a higher down payment in FHA????

We are appraising the property, not the contract ....just state what you know, go on and appraise the property.

Spoke to one of our FHA DE Underwriters - She says that unless the Buyer-Tenant is a relative of the owner that its an-arms-length transaction. She has no idea who told the appraiser it would now need 15% down- She also says the appraiser is trying to be the UW and does not know the guidelines. We have our tenants buy houses from us and they are arms-length-Also there are many FISBO buyers and sellers and no big deal . Anyway I think the appraiser is making a poor call and if not sure he/she needs to contact his/her/it's HOC or talk to some FHA-DE Underwriters

 

[CANative]

The maximum loan-to-value (LTV) factor for identity-of-interest transactions on principal residences is restricted to 85%. The maximum LTV factor for a tenant-landlord relationship exists at the time of contract execution is restricted to 85%. 4000.1 II.A.2.(A).(3) Exceptions to the Maximum LTV Financing above the 85% maximum for identity-of-interest transactions is permitted under certain circumstances, as described in the table below. Exception Description Family Member Purchase A family member purchases: 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. Builder's Employee Purchase An employee of a builder who is not a family member purchases one of the builder's new homes or models as a principal residence. Tenant Purchase A current tenant purchases the property where he/she has rented for at least six months immediately predating the sales contract. Note: A lease or other written evidence to verify occupancy is required. The maximum mortgage calculation is not affected by a sales transaction between a tenant and a landlord with no identity-of-interest relationship. Corporate Transfer A corporation transfers an employee to another location purchases the employee's home, and sells the home to another employee This policy does not apply to LD Advantage products- please refer to the Program Matrices for additional details

 

[glenn walker]

The maximum mortgage calculation is NOT affected by a sales transaction between a tenant and a landlord with no identity-of-interest relationship. The UW has the seller and borrower sign a form stating if they have any relationship ? The appraiser needs to contact his/her lenders UW and or her HOC if she still wants to make this an-issue
	A corporation

 

[spittman]

@glenn walker

The only scenario I could see a tenant and landlord not having an identity of interest (a business relationship) would be a tenant dealing with a management company the whole time and having never met the owner or possibly someone like a friend of the family's or a charity case that stays in the home but doesn't pay rent and is now wanting to buy. But that sounds all complicated and OP shouldn't make it that complex.

 

[J Grant]

The maximum mortgage calculation is NOT affected by a sales transaction between a tenant and a landlord with no identity-of-interest relationship. The UW has the seller and borrower sign a form stating if they have any relationship ? The appraiser needs to contact his/her lenders UW and or her HOC if she still wants to make this an-issue
	A corporation

The appraiser should not be concerned with LTV/ poring over the FHA guide for lenders to try to second guess if borrower will qualify .. IMO a landlord selling to tenant who lives there is not AL due to prior relationship however some differ in opinion there have been prior threads on it.