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 transaction is a sale between parties with an existing business relationship or between family members as defined in Handbook 4000.1 II.A.2.b.ii.(A).  The 85 percent maximum LTV restriction does not apply for Identity-of-Interest transactions under the following circumstances: 
FAMILY MEMBER TRANSACTIONS
• 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 houses or models as a principal residence.  

CORPORATE TRANSFER 
• A corporation transfers an employee to another location, purchases the employee’s house, and sells the house to another employee.  

TENANT PURCHASE
• the current tenant purchases the property where the tenant has rented the property for at least six months immediately predating the sales contract.  A lease or other written evidence to verify occupancy is required. 

For additional information see Handbook 4000.1 II.A.2.b.ii.(A) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-04617