What Is a Package Mortgage in Real Estate?

A package mortgage is a specialized real estate loan designed to finance not only the physical structure and land but also certain personal property items within a single lending agreement. This type of mortgage bundles the cost of the real estate with the value of specific personal belongings, offering a comprehensive financing solution. It integrates diverse assets into one unified loan, simplifying the purchasing process for borrowers.

Defining a Package Mortgage

A package mortgage represents a financing structure that extends beyond traditional real estate loans, which typically cover only the land and permanent structures. This mortgage type includes both the real property and specific personal property, or “chattels,” considered integral to the real estate’s use. A key aspect is the creation of a single loan and lien that secures both categories of assets.

Unlike conventional mortgages, a package mortgage acknowledges that certain personal items contribute significantly to a property’s immediate functionality. By combining these assets under one loan, borrowers avoid the need for separate financing arrangements, such as personal loans or credit card debt, for these items. This integrated approach ensures the personal property also serves as collateral alongside the real estate.

Items Covered by a Package Mortgage

The personal property typically included in a package mortgage consists of items considered essential to the home’s operation or immediate readiness for occupancy. Common examples are major kitchen appliances like refrigerators, stoves, and dishwashers, as well as laundry appliances such as washers and dryers. Window treatments, including blinds and drapes, are also frequently incorporated, as they are often installed as part of the home’s finished state.

In certain contexts, particularly with furnished properties or model homes, a package mortgage may even extend to cover furniture and decorative items. The inclusion criteria generally hinge on whether the personal property functions as a “fixture,” meaning it is attached or considered a permanent part of the real estate, or if its value is directly integrated into the overall utility of the property.

How a Package Mortgage Functions

The operational mechanics of a package mortgage involve a comprehensive appraisal process that accounts for both the real and included personal property. Lenders order an appraisal to determine the combined market value, which serves as the basis for the total loan amount. The value of these items is assessed and then rolled into the total loan amount, reflecting their contribution to the property’s complete offering. This appraisal creates a unified valuation for collateral purposes.

Upon approval, a single loan agreement is executed, and a single mortgage lien is placed on both the real property and the specified personal property. This means the borrower receives one combined monthly payment covering principal and interest for all financed assets. In the event of borrower default, the lender has the right to repossess both the real estate and the included personal property under the same foreclosure proceedings. Borrowers are also restricted from selling any personal property included in the mortgage without obtaining the lender’s prior approval.

Common Applications of Package Mortgages

Package mortgages find common application in specific real estate scenarios where personal property is a significant aspect of the sale. One frequent use is in the purchase of furnished homes, such as vacation properties or rental units, where the furniture and appliances are part of the overall transaction. This simplifies financing for buyers acquiring a move-in ready property.

Another application involves the sale of model homes in new developments, where the builder includes all furnishings and appliances. Similarly, newly constructed homes often come with a complete suite of installed appliances, which can be financed through a package mortgage.