Underwriters are always blamed for being picky but when they see personal property listed on the first page of a Purchase Agreement, they get super crabby. The underwriter will claim that that the loan will not be insured if there is personal property included in the sale.
Here is an example: The agreed upon Purchase Price of a home is $200,000. In that $200,000 agreement, the Seller has included an outdoor play set in the backyard.
The Play set is not considered “real property” but is considered “chattel” which is defined as personal property or movable items in or around the home. Real estate and real property refer to land or any item that is affixed to the home permanently.
What is the big deal, it is only a play set?
Underwriters are highly sensitive to the collateral being pledged to insure repayment, the home’s value. If there are additional items included in the purchase agreement, those items have value if not stated otherwise. If the personal property is included in the purchase agreement, then the home’s value in reality is less than the agreed upon purchase price. This is a problem for the underwriter and you, the borrower.
The underwriter could say that you must state the play set has zero dollar value. This is the typical verbiage you will see on the Purchase Agreement to meet the underwriter’s concerns:
“Personal property listed on the Purchase agreement, as well as on the Seller’s Disclosure, is being sold with the home for the Seller’s convenience and has no monetary value.”
The underwriter could also require you to provide an estimate of what the play set is worth, and deduct that from the Sales Price amount. If that play set is worth $1,000, then your new loan amount will be based off a Purchase Price of $199,000, not the original amount of $200,000. This is never a fun road to go down.
Personal Property items that cause the most problems:
- Outdoor play sets
- Pool Tables
- Flat Screen TV’s and mounts
- Window coverings/blinds/drapes
- Hot tubs
- Lawnmowers
The following items are typically not considered personal property: ceiling fans, fireplace inserts, gas logs and grates, solar systems, window and door screens, awnings, shutters, attached floor coverings, satellite dishes, air coolers/conditioners, pool/spa equipment, garage door openers/remote controls, mailbox, softeners, water purifiers, security systems/alarms.
Fannie Mae view personal property in their guidelines as follows:
Lenders are reminded that personal property, including (but not limited to) furniture, vehicles, boats, floating boat docks, and art work, may not be included as additional security for any mortgage on a one-unit property unless otherwise specified by Fannie Mae. Personal property is permitted as part of the security for a loan on a two- to four-unit property to the extent it is pledged by the 1-4 Family Rider (Form 3170). Whether an item is real or personal property is generally determined by the law of the jurisdiction where the property is located. A professional appraiser who has the knowledge, experience, and geographical competence to complete the appraisal assignment must also possess the expertise to identify personal property items in the appraisal.
https://www.fanniemae.com/content/announcement/sel1009.pdf
What is the best way to handle Personal Property?
The best way for the situation to be handled is to let the negotiations of personal property take place between Buyer and Seller and leave it off the Purchase Agreement altogether. In order for this to take place, it must be discussed with your Realtor prior to signing the Purchase Agreement.
About the Author: Kirk Chivas is a licensed Loan Officer and co-owner of First Commerce Financial, LLC, a mortgage brokerage based in Wixom, Michigan. With over 17 years of experience, Kirk has committed to providing Michigan residents with accurate and honest mortgage advice. If you have any questions about your current or future mortgage needs, please feel free to ask Kirk a question over on his website.
