HUD Expands Identity of Interest Definition for FHA Mortgages

For all FHA mortgages, HUD recently revised its Family Member definition for Identity of Interest.   The definition of a family member, for purposes of Identity of Interest transactions has been expanded to include:  

·     Brother, stepbrother

·     Sister, stepsister

·     Uncle

·     Aunt

These changes are in addition to the previous definitions including:

·     Child, parent or grandparent 

·     Spouse

·     Legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption

·     Foster child

An identity of interest transaction is a sale between parties with family or business relationships.  Financing above the 85% maximum LTV for identity-of-interest transactions is permitted under certain circumstances.

Family Member Purchase

The 85% LTV limit may be waived if the family member has been a tenant in the property for at least six months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy.

Tenant Purchase

A current tenant, including a family member tenant, purchases the property where he/she has rented for at least six months immediately predating the sales contract.  A lease or other written evidence to verify occupancy is required.  The maximum financing calculation is not impacted in a sales transaction between a tenant and seller with no identity of interest.