Mortgage Grapevine

Will FHA allow for a lease w/option to buy?

3 unit owner occupied in MAINE
Client has lease/purchase option
Will FHA allow this and 6% seller consession?
Can a portion of the 6% go torwards up front MI
What % of rent can be used towards down payment.

I dont do FHA....trying to direct the person as best I can,

Thank you
by willyg57 February 26, 2009 10:17 AM

Go to HUD.GOV and look it up.
by REAL ANSWERS February 26, 2009 12:03 PM

HUD will allow any portion of the lease payments paid that is over and above the market rent as determined by the appraiser to be counted towards the DP funds provided they were paid by check.MIP should not be contributed by the seller .
by nxtmepco February 26, 2009 12:58 PM

-Identity of Interest guidelines apply. Tenant must prove occupancy and payment of rent to the seller for the past 6 months immediately preceding the date of the sales contract/lease purchase agreement in order for the max LTV to be available.

-The seller can pay the MIP as part of the 6% limit on financing concessions, but it must be all or nothing. The MIP is not allowed to be split.

-Only the portion of rent that is above the fair market rent (fair market rent as determined by the appraiser) can be used as acceptable down payment funds. Also keep in mind there is a converse situation that could be very negative. If there is a rent credit (as per the Lease/Purchase Agreement and Sales Contract) that exceeds the fair market rent, this is considered a sales concession, and the amount of the excess will be deducted from the sales price before determining the max LTV.

by tennuwgal February 26, 2009 1:54 PM

You need to be aware too that other limitations apply on 3 and 4 unit properties. FHA mandates that the property be self-sufficient, meaning the max mtg. is limited so that the ratio of the PITI,(incl. MIP) divided by the net rental income, does not exceed 100%.

For this purpose/calculation only, the net rental income is the appraiser's estimate of fair market rent from ALL units, incl. the owner occupied unit, less the HOC vacancy factor or the appraiser's vacancy factor, whichever is greater. The Philadelphia FHA HOC vacancy factor (which applies to Maine) is currently 15%.

For a 3 or 4 unit property, the borrower will also be required to have reserves equivalent to 3 mos. PITI after closing (purchases only). Reserves cannot be derived from a gift on a 3 or 4 unit property. This reserve requirement on 3 or 4 unit properties has never been waived by any ML's published subsequent to the 4155.
by tennuwgal February 26, 2009 2:20 PM

thank you for the info .....great help.

by willyg57 February 27, 2009 8:47 AM


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