Understanding the FHA Amendatory Clause and Its Importance

Why do I have to sign the FHA Admendatory form?

Home buyers signing the admendatory clauseThe FHA amendment clause allows you to back out of a house purchase without losing any money if the property's appraisal does not at least equal the sales price.

It is simply one of numerous disclosures that you will be required to sign if you apply for a loan from the Federal Housing Administration (FHA). Having a complete grasp of the FHA amendatory clause, as well as the other FHA disclosures, can assist you in making an informed decision regarding your FHA loan application.

What is a FHA Amendatory Clause?

An FHA amendatory clause for buyers is a form that allows you to back out of a house purchase without losing any money if the property appraisal does not at least equal the sales price.

Who signs the FHA amendatory clause?

The FHA amendatory clause must be signed by the borrowers before signing the purchase contract, or FHA will not insure the loan when it closes. The form becomes effective when it is signed by the buyer, seller and any real estate agents involved in the transaction. Buyers, sellers and their real estate agents must sign and date the clause prior to signing the sales contract.

The Buyer Is Under No Obligation to Cancel the Transaction.

The buyer may, at his or her option, pay the difference between the appraised value and the sales contract price.

The FHA's principal concern is that it only guarantees loans for the value of the home. The sale might proceed if the buyer paid the difference to level the playing field. The buyer has the right to withdraw from the contract if he or she so wishes or is unable to make up the difference in the purchase price.

However, the buyer is not required to do so and may terminate the deal without incurring any financial penalty.

When Is FHA Amendatory Clause Not Required?

If an FHA amendatory clause is not required for the following:

  • Foreclosures. You can buy homes in foreclosed properties where the owner has defaulted on their mortgage.
  • Freddie Mac
    or other government departments or agencies at all levels of federal, state, and local government 
  • Real estate that's owned by Fannie Mae
  • Rural Housing Services,
  • the Department of Veterans Affairs (VA)

Why the Amendatory Clause is Good for Buyers?

This is an excellent method of protecting oneself. If you are going to purchase a house and the appraisal is lower than the sales price, you can still proceed with the purchase if the appraisal is lower than the sales price. If the appraisal is higher than the sales price, you can cancel the sale.

Moreover, the buyer can get any earnest money back that was placed on the sale. The buyer does not have to pay any penalties or cancellation fees for backing out of the sale.

Required FHA Disclosures

The following are the documents that must be signed in order to qualify for an FHA loan:

Assumption of HUD/FHA Insured Mortgages

This form informs you that FHA loans are assumable and states the requirements of allowing someone to take over your mortgage.

This form is an important form. If you just hand the keys over to someone and the transfer was not performed in line with FHA guidelines, you will be held liable if there is a foreclosure.

For Your Protection, Get a Home Inspection

The FHA does not conduct a home inspection on the home you are purchasing. This form states that you should, at your expense, obtain a home inspection.

If you are buying a home with an FHA loan, it is important to get a home inspection. It is a good idea to have an inspection done before you buy a house. The inspector will help you to know the condition of your home.

You can then decide if you want to buy the house or not. It is important to be aware of the house before you buy it.

If you find anything wrong, you can fix it and make the house livable. You can save a lot of money if you know what's wrong with the house. You should get a home inspection. Download a Copy

Important Notice to Homebuyers (HUD 92900-B)

This form details HUD/FHA responsibilities. Download a Copy

  • Condition of Property – HUD/FHA does not warrant the condition of the home.
    Interest Rate and Discount Points – HUD/FHA does not control the interest rate.
  • Don't Commit Loan Fraud
  • Discrimination is prohibited

Informed Consumer Choice Disclosure

The purpose of the Informed Consumer Choice Disclosure is to aid borrowers in comparing the costs of an FHA loan to comparable conventional loans.

It must be provided to prospective borrowers who are eligible for both FHA-insured and conventional mortgage products. Download a Copy

FHA ARM Disclosure (if applicable)

Identity of Interest Certification

FHA defines “Identity of Interest” as any relationship in which the buyer and seller are related and/or professionally associated. This could include parent/child as buyer/seller, a firm selling to an employee, or individuals who are partners in other enterprises.

FHA lead-based paint disclosure

If you're purchasing an older property built before 1978 , you'll need to fill out a lead-based paint disclosure form.

Some homes prior to 1978 had walls painted with lead-based paint, which is particularly hazardous to pregnant women and children.

In addition, you will receive a pamphlet titled "Protect Your Family from Lead in Your Home" to ensure that you are aware of the possible hazards and how to protect your home from lead.
Download a Copy

Notice to Homeowner

This document is similar to the Important Notice to Homebuyers (HUD 92900-B)
Download a Copy

Real Estate Certification

Borrower, seller, and real estate agent or broker must certify, to the best of their knowledge and belief, that: Download a Copy

(1) the terms and conditions of the sales contract are accurate and

(2) any other agreement entered into by any party in connection with the real estate transaction is incorporated into or attached to the sales agreement.

If the sales contract contains a statement that

(1) there are no other agreements between the parties, and the terms constitute the whole agreement between the parties and

(2) all parties have signed the sales contract submitted for underwriting, a separate certification is not required.

Rotating question markFAQs About the FHA Amendatory Clause and Real Estate Certification

Q. Can the FHA amendatory clause be signed at closing?

A. No, the FHA amendatory clause cannot be signed at closing. It must be signed by the buyer and seller prior to closing in order for the FHA loan to be approved.

Q. Does the seller have to sign the FHA amendatory clause?

A. The FHA Amendatory Clause is a requirement for all FHA-insured loans. The clause states that the buyer has the right to cancel the contract if the appraised value of the home is less than the purchase price. The seller must sign the clause in order for the loan to be approved.

Q. When does FHA amendatory clause need to be signed?

A. The FHA amendatory clause must be signed by the buyer and seller prior to the execution of the sales contract.

Q. Who provides the FHA Amendatory Clause?

A. The real estate agent or attorney handling the sales contract typically provides the amendatory clause. The admendatory clause is usually included in most sales contracts.

Conclusion

In conclusion, by signing the FHA Amendatory Clause Real Estate Certification Form, all parties involved are certifying that they have complied with the requirements set forth by the FHA. This form is an important part of the mortgage process, and it is crucial that all parties involved understand and comply with its provisions.

Recommended Reading

  1. FHA Cash Out Refinance: Max LTV and Requirements
  2. Here's What You Need to Know About Having Two FHA Loans
  3. FHA Loans: 10 Common Questions Answered