How to Mortgage a House – With Everything in It

By Steve Matthews

Monday, February 1st, 2016

You want to buy the house—but only if it comes with the boat out back. The seller may agree to the deal, but your lender probably won’t include it in the mortgage.

If the house is purchased with cash, the extra items can be wrapped directly into the purchase price. But if the house is financed, the extras are broken out of the mortgage.  In most cases, lenders prefer a buyer make a separate purchase deal for the personal property with the seller.

When personal property is wrapped into the sales contract, the lender will subtract that value from the purchase price in calculating the loan-to-value ratio. In other words, if the home’s purchase price is $300,000 and includes $15,000 in furnishings, the sale price for the purposes of the down payment and mortgage will be $285,000.

The rule of thumb is that personal property can be included in the loan if it is either physically attached or commonly passed along with a house. Lenders assume a refrigerator, draperies and light fixtures are part of the deal, for example, but a pool table, even one in a designated game room, is not.

However, a lender typically won’t object if the personal property’s inclusion is not above the home’s appraised value.  In other words, yes, the seller can just leave that old sofa.

Most lenders don’t specify a particular dollar amount to trigger a special circumstance, but if the property is valued at $1,000 or more, it likely won’t be allowed.

One reason lenders disallow personal items is that they can be difficult to appraise. Also if the buyer defaults on the loan, he could take away the furnishings or drive away in the car, leaving the lender with no way to recoup that part of the loan.

Here are a few more considerations for mortgage borrowers who are also purchasing personal property:

• Car trouble. With cars, boats and other vehicles, if borrowers apply for a separate loan at the same time as a mortgage, that action will raise their debt-to-income (DTI) ratio, which can affect their ability to qualify for the mortgage. Federal rules require most borrowers to have a 43% or lower DTI.

• Tax issues. Unlike a home purchase, personal-property sales are usually subject to sales tax. On the other hand, if the value were wrapped into the home purchase price, it could be subject to local real-estate transfer taxes as well, adding to the expense.

• A room with a view. Today lenders are more likely to approve one item of personal property as part of the real-estate deal: the flat-screen TV—but only if it is attached to the wall. However, borrowers should check with their lender before assuming speakers or specialty seating in a home theater will be allowed.

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