Relative wants to sell their house for 150K

[Carloscda40]

Working on getting my scores 620 or more and get my utilization down as well, I make 85k a yr.

Wanted to know would be a smooth process to get approved for a FHA loan?

[ShanetheMortgageMan]

FHA has some specific guidelines when buying from a relative, which requires a 15% down payment unless either:

1. The home you are buying is the principal residence of the family member you are buying it from, or
2. You've lived in the home for 6 months at the time you sign the purchase contract

If you meet one of those two requirements then the down payment requirement is just 3.5%.

In either situation, your relative you are buying it from can help you out with the down payment by doing a "gift of equity".  In your situation it might work like this:  your relative wants to get $150k from this sale but the home is actually worth $180k and would appraise for that amount.  Instead of selling the home to you for $150k and you having to put 3.5% or 15% down from your own funds, your relative would sell you the home for $177k and gift you $27k of equity so you only have to get a mortgage for $150k, thereby meeting the 15% down payment requirement (or sell it to you for $156k and gift you $6k of equity to meet a 3.5% down payment requirement).  Your relative can also gift you equity to cover the closing costs, so if there is enough equity over the $150k your relative wants to get then it's possible you could purchase this home with no money out of pocket.

What negatives on your credit are bringing your scores down to below 620?  Any negative marks in the past 12-24 months?

[Carloscda40]

Thanks for the detailed information!

The only thing bringing my scores down are my high UTI's CC's which I'm working on to bring them down.

[Carloscda40]

Couple more questions, would I have to hire an home appraisal?

If I'm approved for the 150k would I be able to pull out extra for remodeling?

[ShanetheMortgageMan]

The lender you are getting your mortgage with would order the appraisal, you could get one on your own ahead of time if you're curious about the value but it couldn't be used for the mortgage transaction.  

There are renovation loans you can purchase the home with, they require contractors to get involved prior to closing and the additional renovation funds are disbursed as work is completed.  The renovations could be to bring the home condition up to pass an appraisal inspection or if the home is fine condition and you'd just want to improve it.  You'd qualify for the full amount that is needed to purchase the home + renovations.  In  hat situation the lender requires the appraiser to do a "subject to completion" appraisal to determine the home's value after the renovations have been completed. 

An alternative to the renovation loan is after closing your family member could gift you funds from their profit of the sale to make renovations with, but it requires the home to appraise for enough for the seller to get their required profit plus the gifted funds for renovation.