The Non-Realty Items Addendum Can Mess With Your Home Loan
[Editor’s note: Today, we’ve brought on Jennifer Guidry, a local lender, to talk about the Non-Realty Items Addendum, which we’ve discussed before in “Does that come with the house?,” and how it can affect your loan when buying a home. While it is a common form and it used to be seen as no big deal, these days it can cause issues for buyers during the process of underwriting and closing your home loan.]
So called “non-realty items” (which can be just about anything – we’ve seen furniture, boats, jet skis…you name it!) that find their way onto the Non-Realty Items Addendum, if they are anything more than what is customary (like a refrigerator), are likely to be viewed as an inducement to purchase…which in the lending world, is a major no-no. Mortgage companies finance homes, not personal property.
FHA loans require items on a Non-Realty Addendum (that are not customary for the area) to be given a value by the appraiser and then subtracted from either the appraised value of the home or the purchase price, whichever is lower. This will effect a borrower’s cash amount needed to close.
VA and conventional loans require the appraiser to estimate the item’s value and then the lender has to reduce the amount of the sales price by that value. If the amendment reflects that the items are conveyed at no value, then the appraiser must state that these items conveyed are customary and have no value. Again, this is only on customary items for our area – in the San Antonio area, a refrigerator is about all that is considered customary.
So, what do you do to address the buyer’s and seller’s needs while not messing up the loan? A separate bill of sale should be sufficient. Keep it off of the contract and leave the Non-Realty Items Addendum out of the picture.
image courtesy of Randy Heinitz