I recently finished my first rehab and I was lucky enough to find a qualified buyer right away. It just so happens the buyer is my brother. He was able to qualify for an FHA loan with 3.5% down. When the FHA appraiser came he saw that the house was empty. I didn’t think anything of it until a week or so later when the loan officer informed me that my brother would need 15% down because FHA determined that the house had been vacant. I have never heard of anyone needing more that 3.5% down for an FHA loan until now. Technically my brother has the cash to make the 15% down payment but it was money he had set aside for his wedding coming up in September. I thought a seller carry back mortgage would be a good idea so that he could keep cash on hand for his wedding but FHA says seller carry back isn’t allowed.
The other option is this: After the closing I will have cash from the sale of the home and I could lend him what he needs for his wedding. The only thing is it will be a significant amount of money and I would like to have a second mortgage on his house as collateral. Since I was the seller of the home this is essentially the same as a seller carry back mortgage. I am wondering if this would send some kind of red flag to FHA or the mortgage holder and activate a due on sale clause.
If anyone has dealt with something like this I’d really appreciate some insight. Thanks