FHA Loan Articles

March 10, 2015 - There are situations where a buyer wants to purchases a home with an FHA loan and the seller will try to sweeten the deal by offering to include personal property such as appliances, vehicles, or other items. Because the FHA has strict rules on something known as “inducements to purchase” limiting seller contributions to the sale of the home to six percent or below (of the asking price or appraised value, whichever is lower), does the FHA allow or deny sellers to offer personal property in this way?

The FHA defines an “inducement to purchase” when the seller pays expenses on behalf of the borrower that exceed six percent of the sales price or appraised value as mentioned above. Personal property isn’t the same as those payments in the eyes of some, but that does not mean the FHA doesn’t also regulate this part of the transaction.

The rules on this can be found in HUD 4155.1, Chapter Two, Section A, which says, “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.”

Including a car, boat, furniture or a television would require the lender to deduct the value of all the included items from the loan amount. Other personal property may fall into more of a gray area-- according to Chapter Two, some items are considered “customary” and can be included in the sale without the value of such customary items deducted.

Chapter Two rules may or may not apply (depending on whether the item is considered customary or not) for the following personal property:
 

• 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. That is a very important thing to keep in mind when negotiating with the seller.