Trying to buy a home in preforclosure that I live in

[mitch]

I live in a home that is about to be foreclosed on. I want to buy it. Because I have no traceable rent payments, my lender says I don't qualify for the 3.5% rate on FHA. They have told me the only way they can get me approval is with at least 15% down, which I cannot come up with without borrowing more money. They went on to tell me they can get me into another home with no problems, but not the home I live in. Sounds crazy that I can get into a $200k home easier than a 135k home that's worth close to 300k.

[ShanetheMortgageMan]

When there is a landlord/tenant relationship between you and the seller at the time you sign the purchase agreement, FHA limits the maximum financing you can obtain to 85% of the purchase price (or appraised value, whichever is lower).  However, if you can document you've been a tenant for at least 6 months immediately predating the sales contract then you'd be eligible for 96.5% financing.  Rent payments don't necessarily need to be documented, but a lease or other written evidence to verify tenancy and occupancy is required.  What documentation do you have to verify you've been a tenant for 6 months before you signed the purchase agreement?  Do you have a written lease agreement?  Do you have utility bills in your name that go back to at least 6 months ago?  How do you pay your rent?  

[Shooting-For-800]

Family, I assume?

[mitch]

I paid rent by paying the utility bills, electric and water was in her name, internet service was in my name. I would also pay a storage bill she had. We had no lease, but both are willing to back date one. I have been living here for 4 years. I was basically renting a room. It was not family. My income taxes, paystubs, even license have this address. Furthermore, the owners are now seperated and getting divorced to further complicate matters. They both have moved out.

[mitch]

No, not family.

[ShanetheMortgageMan]

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@mitch wrote:

I paid rent by paying the utility bills, electric and water was in her name, internet service was in my name. I would also pay a storage bill she had. We had no lease, but both are willing to back date one. I have been living here for 4 years. I was basically renting a room. It was not family. My income taxes, paystubs, even license have this address. Furthermore, the owners are now seperated and getting divorced to further complicate matters. They both have moved out.

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Sounds like you can document you've lived there for long enough.  A formal lease isn't always required, it could just be a statement signed by you and the owner/landlord stating the terms of your tenancy (when it began, that you were required to pay for certain household expenses like utility bills, that they occupied the property until recently).  However, a backdated lease that contains factual information could work as well.  Sounds like your loan officer wasn't asking the right questions.

[ShanetheMortgageMan]

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@Shooting-For-800 wrote:

Family, I assume?

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Before the OP responded I was thinking that's a possibility too.  In that situation (renting from a family member) then maximum 96.5% financing could still occur if the landlord family member lived in the property as their primary residence or the borrower has been a tenant for at least 6 months immediately predating the purchase contract.