When obtaining a Federal Housing Administration (FHA) loan, the Identity of Interest Certification is essential if the buyer and seller share a prior relationship beyond a typical real estate sale. This may include family members, employer-employee relationships, builders selling homes they own, or businesses with common ownership. The certification aims to confirm the transaction’s fairness and integrity.
In an Identity of Interest transaction, the FHA mandates specific guidelines to prevent inflated home prices, fraud, and undue risk to both the borrower and the FHA insurance fund. To mitigate this risk, such transactions usually require a higher down payment. For most standard FHA purchase loans, the minimum down payment is 3.5%. However, with an Identity of Interest, the loan-to-value (LTV) ratio commonly cannot exceed 85%, meaning the borrower must provide at least 15% down, according to HUD Handbook 4000.1 (Section II.A.1.b.i.(A)(3)).
There is a significant exception known as the “bona fide tenant” rule, which applies when the buyer has rented the property for at least six months before purchase and intends to occupy it as their primary residence. Under this condition, the standard 3.5% down payment may apply despite the Identity of Interest.
Transactions that qualify as Identity of Interest include:
- Family member sales (parent, child, sibling, grandparent, grandchild)
- Employer to employee sales or vice versa
- Builder or contractor selling a home they built or previously owned
- Related businesses with shared ownership selling property between them
Understanding whether your transaction is an Identity of Interest scenario is crucial and must be disclosed to your lender early to prevent loan delays or denials. Transparency ensures accurate appraisal, proper loan structuring, and compliance with FHA regulations.
Even with Identity of Interest certifications, FHA financing remains accessible with proper planning. Consult an experienced FHA lender to navigate your specific circumstances and maximize your chances of loan approval.
For more on FHA loans and related topics, see our FHA Loan glossary entry and learn about Down Payment guidelines.
Additional Resources
- HUD Handbook 4000.1, Section II.A.1.b.i.(A)(3) on Identity of Interest transactions: https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
- Consumer Financial Protection Bureau (CFPB) mortgage resources: https://www.consumerfinance.gov/consumer-tools/mortgages/
Understanding the Identity of Interest Certification can streamline your FHA loan process and help avoid surprises when buying a home involving closely related parties.