How underwriters look at personal property and seller credits

One of the first things I do when I take a purchase transaction is check the real estate contract and go directly to the personal property section. I’m looking to see what personal property is listed. Here is what Fannie Mae says about personal property: “Personal property/principal
residence — A one-unit property that is the borrower’s principal residence may not include personal property or other items (such as appliances, furniture, or equipment) that might be considered as additional security.” Definitely open to interpretation. Some lenders will pick apart this section and require a value to be placed on the personal property. This can ultimately reduce the sales price and affect the purchaser’s loan amount. So, I’ll leave it up to you as to whether you include it in the sales contract.

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Another item we run into is when the seller is giving a credit to the borrower at closing. Most of the time this occurs because of repair issues from the inspection. Below are the do’s and don’ts when this occurs from the mortgage standpoint:

1) The seller is only allowed to pay closing cost and pre-paid items. The seller can not credit money to the borrower at closing or it will reduce the sales price.

2) It’s best to do an addendum with just the following language, “seller is crediting x amount at closing towards purchaser’s closing cost and pre-paids.” Also, if the repairs are listed in the contract the underwriter will want them fixed prior to closing.

3) Any time you do an addendum please send it to the attorney as well as the lender. A lot of times the attorney will have the addendum and the lender will not know anything about it until they see the HUD. This could delay closing so please notify the lender and run it by them to make sure it will not be a problem.

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