Transactions that affect maximum FHA mortgage limits

There are certain types of loan transactions that do affect the amount of financing that will be available and to calculate the maximum mortgage. The transactions include identity of interest, three or four unit properties, and properties in which a house would be constructed by the borrower on their own land, and those properties that are under construction for a period of less than one year. The identity of interest transaction on the principal residences will be restricted to a maximum of 85 % of the LTV ratio. The identity of interest is the sales transaction between parties with business or family relationships. For maximum financing, above the 85% of LTV will be permissible under the following circumstances:

1. A family buying from another family member as a principal residence. In this case the maximum mortgage would be lesser, either the 85 percent of the appraised value or the LTV ratio percentage that is applied to the sales price after making the necessary adjustments. This limit will be waived if the family member is a tenant for a period of six months before the date of sales contract.
2. If an employee of the builder purchased one of the builder’s new home as their principal residence.
3. If the current tenant who has rented the home, for a minimum period of six months, makes the purchase of the home.
4. If a corporation purchases a home of a relocating employee and sells it to another employee.

In case of non-occupying borrowers where the borrowers do not occupy the property as a principal residence then the maximum mortgage would be limited to 75 % of LTV. If the parent wants to sell the property to the child, the parent will not be able to be co-borrower along with the child on the new mortgage unless the LTV is 75% or less. FHA does not impose any additional criteria for underwriting such transactions, which includes the qualifying ratios; the borrower who occupies the home must meet it individually. The lenders will have to make the judgment of each transaction based on its merits.

In case of three and four unit properties where regardless of the occupancy status the property should be self sufficient, which means that the maximum mortgage will be limited to the ratio of the monthly mortgage payment to the monthly rental income that does not exceed 100 percent. If the borrower builds a home on his/her own land, then the maximum financing will be available if the borrower receives no cash from the settlement.

If the borrower uses the loan for complete payment on a land contract and if the borrower does not have the title of the property, then the new mortgage will be processed as a purchase or refinance with FHA insured financing. Those properties that are under construction within a year or those properties that are not meeting the criteria, financing will be limited to 90%. To get more than 90% of financing regardless of whether the property has been occupied perviously or not  must still meet certain criteria. If otherwise, the property will be classified as under construction and  financing will be limited to 90%.