The Federal Housing Administration mortgage guarantee program is designed to help Americans get home loans with relatively liberal qualifying requirements and low down payments. Since a revocable trust is, in many ways, an extension of you as a person, the FHA will grant you a mortgage guarantee even if you buy with your revocable trust. Some FHA lenders, however, won't.
Living revocable trusts are primarily set up as an estate planning tool. When you put assets in a trust and eventually die, your trust won't. This means that your assets don't have to pass through probate. While you're alive, though, you control your trust. In many cases, you'll be the trustor since you put assets into the trust, the trustee since you control what the trust does and the beneficiary, since you get whatever comes out of the trust. Instead of a will, you set up rules for your trust indicating what you would like to happen if you're no longer able to serve as the trustee or you're no longer around to be a beneficiary of it.
The FHA's guidelines for borrower eligibility requirements are clear. Revocable living trusts can get an FHA-insured mortgage as long as the beneficiary of the trust is responsible for the loan and remains in the house. In essence, the FHA's lending to the beneficiary. It's just doing it through the trust.
The FHA essentially requires two things to guarantee a loan to a revocable trust. First, it needs the lender to have a mechanism in place for getting notified when the owner moves out or sells the property. Second, to issue a guarantee, the FHA wants the trust as well as the individual borrower behind the trust to sign both the promissory note and the security instrument, which is either a mortgage or deed of trust, depending on the state. The actual borrower doesn't even need to be on the property's main deed.
In addition to the FHA's rules, individual lenders can also set their own. Some simply won't underwrite a loan to a revocable trust under any circumstances. Others will but require additional supporting documents. You, as trustee, may have to share your trust documents to prove that you have the right to put a mortgage on the trust's property. You may also need to provide your lender with a letter from an attorney that confirms that the lender's rights won't be harmed by your trust arrangement.
- The Missouri Bar: What is a Revocable Living Trust?
- U.S. Department of Housing and Urban Development: HUD 4155.1 - Section A. Borrower Eligibility Requirements Overview
- Provident Bank Mortgage: FHA Guidelines (FHAF)
- Pinnacle Capital Mortgage Corporation: FHA Guidelines
- Mountain West Financial: Wholesale Bulletin 13W-16
- Valley National Trust Services: Critical Points to Consider Before Transferring Real Property to a Trust
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