Understanding the FHA Amendatory Clause and Its Importance
Why do I have to sign the FHA Admendatory form?
The
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.
FAQs
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
- FHA Cash Out Refinance: Max LTV and Requirements
- Here's What You Need to Know About Having Two FHA Loans
- FHA Loans: 10 Common Questions Answered