Properties to be acquired through an unrecorded land contract must be treated as a purchase. When the purpose of the new mortgage is to pay off an outstanding recorded land contract, the transaction is treated as a Rate and Term Refinance. The unpaid principal balance shall be deemed to be the outstanding balance on the recorded land contract.
For additional information see Handbook 4000.1 II.A.1.b.i(A)
For information on calculating mortgage amounts for Purchase Transactions see Handbook 4000.1 II.A.2.
For information on calculating mortgage amounts for Refinance Transactions see Handbook 4000.1 II.A.8.d.
Handbook 4000.1 is available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh