February 4, 2015
Sometimes when a borrower purchases a home, the seller will offer to to throw in some types of personal property as part of the deal. Knowing that the FHA has strict rules on something known as “inducements to purchase”, does the FHA allow or deny sellers to offer personal property to sweeten the real estate deal?
An inducement to purchase is when the seller offers to pay certain expenses on behalf of the borrower that exceed six percent of the sales price or appraised value (whichever one is lower). But offering property isn’t the same as paying in the eyes of some–does that mean the property is exempt from inducements to purchase regulations?
The answer to this question can be found in HUD 4155.1, Chapter Two, Section A. That part of the FHA loan rulebook states:
“Personal property given by a seller and/or another interested third party to consummate the sale of a property results in a reduction in the mortgage amount. The value of the item(s) must be deducted from the lesser of the sales price or appraised value of the property before applying the LTV factor.”
Cars, boats, furniture and televisions all require the lender to deduct the value of the item(s) from the loan amount. Other items may fall into more of a gray area, according to Chapter Two, some items are considered customary and may not have to have the value deducted. This may or may not apply (depending on whether the item is considered customary or not) for:
• ranges
• refrigerators
• dishwashers
• washers
• dryers
• carpeting
• window treatments
FHA loan rules state that these items may not require an adjustment to the loan amount as long as it’s determined that they are customary AND no cash allowance has been paid to the borrower.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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