Buying with an FHA Loan: Beware Seller Marketing Gimmicks

by Gina Pogol
July 23rd, 2010

When the housing boom party was in full swing, lavish extras were often thrown in to “help” buyers decide to purchase property. Sellers tossed in cars, plasma TVs, hot tubs, snow blowers, and boats to give their properties an extra edge in the market. Today’ those inducements are making a comeback, thanks to the expiration of the home buyer’s tax credit. Sellers need to get buyers interested in any way they can, short of giving their homes away. But be careful about purchasing such a property with an FHA mortgage — the lender isn’t going to be keen on financing your new big screen along with the house.

Things are tougher all over, and while in the past it was no big deal to get the furnishings thrown in with the house (all the real estate agent had to do was include the phrase “conveyed at zero value” in the contract after listing the goodies), it isn’t that easy anymore.

Before you jump on a property that includes a riding mower or speed boat, check out FHA’s guidelines on these inducements to purchase.

Personal property items such as cars, boats, riding lawn mowers, furniture, televisions, etc., given by the seller to consummate the sale result in a reduction to the mortgage. The value of the item(s) must be deducted from the sales price and the appraised value of the property (if not already done so by the appraiser) before applying the LTV ratio.

However, not everything thrown in is considered an inducement to purchase. It depends on what’s customary in the area. For example, ski condos are frequently sold with the furniture or hot tub included because the seller doesn’t want to have to haul them out. It’s a convenience thing, not a value thing. Here’s the rest of it:

Certain items, depending upon local custom or law, may be considered as part of the real estate transaction with no adjustment to the sales price or appraised value necessary. These items include ranges, refrigerators, dishwashers, washers, dryers, carpeting, window treatments, and other items as determined by the jurisdictional HOC (home ownership center). That office determines if these items affect value and are considered customary. Replacement of existing equipment or other realty items by the seller before closing, such as carpeting or air conditioners, does not require a value adjustment provided no cash allowance is given to the borrower.

It is essential that you tell the real estate agent representing you that you will be buying with an FHA loan. Note that your seller will still be able to pay up to 3% in allowable closing costs for you, which is $9,000 on a $300,000 property. With that kind of (legal) incentive in your pocket, you can afford to buy your own big screen TV.

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