The short answer
Yes. FHA normally limits a sale between relatives, or between a landlord and tenant, to 85% of the home's value. The limit is lifted, so 3.5% down is possible, if you have rented the home for at least six months or you are buying a family member's own residence.
The rule
FHA treats a sale between family members, or between people with a business relationship, as a special case. So is a sale where the buyer is the seller's tenant when the contract is signed. The starting limit is a loan of 85% of the value, which means 15% down.
| Your situation | What FHA says |
|---|---|
| You are buying a family member's main residence, to live in | The 85% limit may be exceeded. |
| You are buying a home a family member owns, and you have been the tenant for at least six months before the contract | The 85% limit may be exceeded. A lease or other written proof is required. |
| You are buying the home you rent from a landlord who is not family, and you have rented it for at least six months before the contract | The 85% limit may be exceeded. A lease or other written proof is required. |
Gift of equity
When a family member sells to you for less than the home is worth, the difference can count as a gift toward your down payment. FHA allows this only between family members, and it needs a gift letter signed by the giver and by you.
What to have ready
- Your lease, or other written proof you have lived there and for how long.
- Proof of your rent payments.
- The purchase contract.
- A gift letter, if the price includes a gift of equity.
An example at $450,000
- You have rented the home for eight months. The 85% limit is lifted. With a score of 580 or higher the minimum down payment is 3.5%: $15,750.
- You have rented it for four months. The 85% limit applies. The minimum down payment is 15%: $67,500.
An illustration of the rule, not a quote or an offer. Waiting until the six months have passed before signing the contract changes which row you are in.
Two other cases FHA names
- A builder's employee buying one of the builder's new homes or models to live in.
- A corporate transfer, where a company buys a relocating employee's house and sells it to another employee.
In both, the 85% limit may also be exceeded.
What can go wrong
- Under six months. A tenant with less time in the home is held to 85%.
- No written lease. FHA asks for written evidence.
- The appraisal. The loan is based on the appraised value, and FHA appraisers also report on condition.
What I see in real files
Jamal's own words go here: two to four sentences on what he sees in real files like this. Claude does not write this part.
Questions people ask next
Who counts as a family member?
FHA's definition includes parents, grandparents, children, spouses and domestic partners, siblings, uncles, aunts and in-laws.
Do we need real estate agents?
FHA does not require them. You still need a written purchase contract.
Can my parent sell to me and also co-sign?
That combination limits the loan to 75%. A parent on your FHA loan