I have a somewhat unique (but not unheard of) situation and am trying to figure out the best way to proceed. We found our "dream house" last year. It was in absolutely horrible condition and would not qualify for a mortgage. Even a rehab loan would have been pushing it. Instead, my boss and business partner purchased the home for me, in his name, with cash. I proceeded to move into the habitable rooms, while we both put money into repairs.
Now, we are a year later and I am wanting to put the house in my name. In order to do that, I need some type of mortgage that will pay him back. Since title is in his name, I am assuming it would be a purchase loan, but since it is my boss and business partner, it will be a non-arm's reach transaction, just like if I was buying it from a blood relative. I'm trying to figure out the best way to proceed, as what makes the most sense to me ethically, may not jive with regulations.
Most sense ethically: Purchase price based on fair market value as determined by independent appraiser; mortgage amount equal to what I actually owe boss; difference is my equity/downpayment. Ideally that difference would put me where we didn't have to pay for mortgage insurance either. If we had put the house in my name to start with, this would be equivalent to refinancing today based on it's value today. I have a feeling regulations will get in the way? Bottom line is that we've been spending money on fixing the house, so there aren't a lot of reserves for a down payment.
I have receipts for the repairs and materials that I have paid for (new stove, wall oven, tiling, kitchen cabinets, hvac repairs, etc), so it isn't all just "sweat equity" (although there is plenty of that too). The original purchase contract from last year was also in my name, and my $1000 earnest money was used in the closing. So technically I should already own almost 1% of the house 
I transfered the purchase contract to him at the closing table as it made his accountant happier to have it in his name. I have utility bills and the HVAC maintenance service contract in my name for the past year as well. Worst case scenario, that I can live with, is that my receipts of actual monies spent on the house would count as downpayment?
From everything I've read, if we DON'T go with fair market value for the purchase price, then my boss could have tax consequences. So the bank ~should~ use that too, right? Wishful thinking?
There is still a little work to be done, but the house should easily appraise for enough to make the LTV at 80% or under. It ~should~ be in good enough shape now to even qualify for FHA. There is some peeling paint on the exterior, which they might want addressed, but I've been waiting on doing it as a fall-back on the sweat equity.
I don't want my report pinged too many times trying to guess at the right way to apply, or by banks that don't do well with these type of situations, so I'd like to get recommendations so that we do it right the first time.
