FHA Loans / FHA, VA & Conventional Related

What if mom wants to sell to me and I have no money for FHA downpayment?

June 5, 2011 at 6:21 am By

The majority of transactions involving financing are ‘arms-length’ transactions where Buyer and Seller are strangers and have had no previous relationship.
However, often a parent wants to sell to their kid, or a similar family-2-family sale happens where the buyer has no money for a standard FHA downpayment (3.5%). Is there a way for the buyer to take out a new FHA loan and use equity in the home to cover their downpayment requirement? (assuming equity exists) . . .

The answer is yes, with restrictions.

We are limited to 85% LTV if the Donor (person Gifting the equity) is not presently using the home as his/her principal residence. In this instance, the home has to have 15% equity or more if the buyer has no money for a cash downpayment.
However if the donor/family member presently lives in the home then we can go to 96.5% with just a 3.5% equity or cash downpayment requirement.
It gets even better. Even if the donor has NOT been living in the home as his/her principal residence, we can still reach 96.5% financing if we can document that the Borrower (ie the person receiving the gift of equity) has leased the home for at least the past 6 months.

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