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What is a Package Loan?

Jim B.
Jim B.

A package loan is similar to a mortgage loan that is used not just to buy a home but also personal property to be used inside the home. The personal property usually includes furniture and appliances that will be used inside the home. Generally, a consumer would consider a package loan if he was buying a home that was being sold unfurnished. This arrangement has the advantage of streamlining the loan process and can eliminate excess financing costs.

When people buy homes, they typically do so through a standard mortgage agreement. A mortgage comes through a lender who specializes in such agreements and provides the up-front money to buy the house for the borrower. The borrower usually has to make a down payment that is just a small fraction of the original cost, but then pays back the lender through regular installments along with interest payments over a long period of time. Typically, such a loan would cover only the cost of the home being bought, but a package loan allows the borrower to also include some of the amenities needed in the new home.

Man climbing a rope
Man climbing a rope

The obvious reason for needing a package loan would be if a buyer found a house that came without furniture or appliances. There are very few people who would prefer to live in a home without furniture like beds, couches, and dressers or without appliances like stoves and refrigerators. As such, any typical mortgage agreement for this type of house would leave the buyer still needing the financing to purchase those objects.

One other way to attack this problem would be for a home buyer to secure a separate loan to pay for these necessities. A home equity loan, which comes from a lender who uses the home as security for repayment, is usually available to the buyer of a new home. Still, a home buyer who chooses a package loan can claim some advantages over someone choosing multiple loans.

For one, having just the package loan means that the buyer need only apply for a single loan application, which can be a laborious process under any circumstances. In addition, having just one loan to be repaid means that the buyer has just one set of interest payments to make, which can cut down on expenses. One disadvantage to a loan that covers both home and personal property is that it may not provide the flexibility that a more open-ended, credit-based loan can.

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