FHA loans · HUD Handbook 4000.1Buying from a family member or your landlord with an FHA loan

FHA normally allows up to 96.5% loan-to-value on a purchase, but an identity-of-interest sale – between family members or parties with an existing business relationship – is limited to 85% on a principal residence, and so is a purchase where a tenant-landlord relationship exists when the contract is signed. The 85% cap does not apply when the borrower buys, as their principal residence, the principal residence of another family member, or a property owned by a family member that the borrower has rented for at least six months immediately before the sales contract (with a lease or other written proof); nor to a builder's employee buying the builder's home, a corporate relocation, or a tenant who has rented the home for at least six months before the contract. Family member, for FHA, means a child, parent or grandparent (including step and foster), spouse or domestic partner, adopted or foster child, brother or sister (including step), uncle or aunt, and in-laws. Separately, when one of the borrowers will not live in the home, the maximum LTV is 75% – raised to 96.5% if the borrowers are family members, unless a family member is selling to a family member who will be the non-occupying co-borrower, or the property has two to four units.