Will mortgage lender finance furnishings when buyers want the house and all the stuff inside?

You want to buy the house, but only if it comes with the boat out back. The owner may agree to the deal, but your mortgage 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 by a mortgage lender, the extras are broken out of the mortgage. In most cases, mortgage 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, from our experience as home loan agents in San Ramon, typically, the mortgage lender will subtract that value from the purchase price in calculating loan-to-value (LTV) ratio, which reflects the amount of the loan as a percentage of the home’s value. In other words, if the home’s purchase price is $1 million and includes $25,000 in furnishings, the sale price for the purposes of the down payment and mortgage will be $975,000.

Our loan agent’s 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. Mortgage 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 mortgage 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.

Lenders do not 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.

From our loan agents experience working with real-estate agents, they also prefer to stay out of personal-property price negotiations because they don’t get a commission on an extra transaction, which often leads to a conflict between the buyer and seller over the property value.

A special circumstance may occur when a speculative builder is providing a fully furnished new home. If that’s common and customary in a market, a mortgage lender may allow the furniture to be included in 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, Mr. Shulman says. Federal rules require most jumbo 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.

Contact our home loan agents in San Ramon for home mortgage loan and mortgage refinancing.