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Can an FHA Buyer do a Temporary Residential Lease?
Texas real estate contracts provision for temporary leases for both Buyers and Sellers to accommodate for either early possession (ahead of the closing date) or deferred possession (after the closing date).
Temporary leases under a purchase agreement are different from standard lease agreements in several ways, most notably:
• these temporary agreements have restrictions on the term (duration / number of days). Specifically, a Buyer's Temporary Residential Lease is strictly limited to a term of no more than 90 days PRIOR to closing.
• these agreements do not impose Property Code compliance requirements for matters of repairs and maintenance, smoke alarms, and security devices.
In recent years, we have encountered push-back from lenders who claim that FHA Buyers putting less than 15% down, in particular, are NOT allowed to do a Buyer's Temporary Residential Lease under a purchase contract, citing an Identity of Interest as the reason.
The common perception is that a temporary lease agreement triggers underwriting requirements that would require a higher down payment.
Are loan amounts restricted when the purchase involves an identity of interest?
The maximum loan-to-value (LTV) percentage for Identity-of-Interest transactions on principal residences, including transactions where a tenant-landlord relationship exists at the time of contract execution, is restricted to 85 percent. An Identity-of-Interest ... more

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