What Is The FHA Amendatory Clause And Who Is Obligated To Sign It

This BLOG On What Is The FHA Amendatory Clause And Who Is Obligated To Sign It Was UPDATED And PUBLISHED On July 15th, 2020

What Is The FHA Amendatory Clause And Who Is Obligated To Sign It

The Federal Housing Administration is part of the United States Department of Housing and Urban Development. FHA  was created back in 1934 to promote homeownership for hard-working Americans with moderate-income with less than perfect credit and minimal down payment becomes homeowners.

  • The Federal Housing Administration, also commonly referred to as FHA, is not a lender
  • It is a government-sponsored entity that insures home loans to private lenders
  • FHA insures lenders in the event of foreclosure and lenders taking a loss
  • In order for lenders to originate an FHA loan, they need to be HUD Approve
  • HUD Approved Lenders need to underwrite the FHA loan under HUD FHA TOTAL Scorecard, which is HUD 4000.1 FHA Handbook Guidelines
  • If the lender does not adhere to the FHA lending guidelines, that loan cannot be insured by the Federal Housing Administration
  • The Federal Housing Administration requires all lenders originating FHA Loans to have all required parties complete and sign FHA amendatory clause

In this article, we will discuss and cover The HUD Amendatory Clause and its purpose.

When Is The Amendatory Clause Required During The Home Purchase Process

Amendatory Clause, attached to the real estate purchase contract to minimize risks for FHA buyers needs to be signed by the following people:

  • Buyers
  • Sellers
  • Buyers Real Estate Agent
  • Sellers Real Estate Agent

The FHA Amendatory Clause was created to help protect the home buyers interests in a real estate transaction

Role And Function Of FHA 

what is the Role And Function Of FHA 

HUD, the parent of FHA, promotes lenders to originate and fund FHA Home Loans to home buyers, first time home buyers, and buyers with less than perfect credit. The function and role of FHA are to insure residential mortgage loans that have been originated and funded by FHA approved lenders. FHA will reimburse these FHA approved lenders against borrowers who fail to repay their mortgage loan and go into default. Due to this guarantee and government insurance by HUD, lenders can offer home loans with very little down payment at very low-interest rates.

  • FHA charges mortgage insurance premiums on every loan they insure
  • There is an upfront one-time mortgage insurance premium
  • There is also an ongoing lifetime annual FHA mortgage insurance premium on 30 year fixed rate mortgages
  • The FHA mortgage insurance premium goes into a special FHA fund
  • This fund is used to pay out default by borrowers who default on their loan
  • FHA loans are extremely popular

Over a third of home loans originated in the United States are FHA Home Loans.

Importance Of FHA Amendatory Clause

How Importance Of FHA Amendatory Clause

The Federal Housing Administration requires that all real estate purchase contracts have an amendatory clause known as the FHA Amendatory Clause.

  • The FHA Amendatory Clause was created to help minimize risk and protect the home buyer

The FHA Amendatory Clause purpose is the following:

  • it amends any part of the real estate purchase contract that contains verbiage constituting home buyer forfeits the purchase earnest money
  • or penalizes, and/or require additional funds to close if the property does not appraise out at the original contract sales price

FHA Loan Requirements

what is the FHA Loan Requirements

FHA will only lend up to 96.5% of the sales price. The sales price needs to be validated with the appraised value.  FHA requires that they have sufficient collateral on the property in the event of default.
  • If the property appraises lower, the contract needs to be amended to the lower appraised value
  • Lenders will lend 96.5% of the amended price that is reflected in the appraisal
  • In the event, if the home buyer enters into a real estate purchase contract that is higher than the value of the home, the FHA Amendatory Clause protects the home buyer to cancel the real estate purchase transaction
  • This is due to the FHA Amendatory Clause
  • Both buyers and sellers can renegotiate the real estate purchase price
  • The buyers, sellers, buyers real estate agents, and sellers real estate agents need to sign the FHA Amendatory Clause
  • If the home buyer and seller negotiate a new sales price due to the low appraisal, a separate FHA amendatory clause or another amendatory clause is not required

FHA Amendatory Clause is not required for properties that are owned by the following:

  • United States Department of Housing and Urban Development, HUD

Or by mortgage lenders as well as home sales by Fannie Mae, Freddie Mac, VA, or properties that are not primary residences.

1 Comment
  1. Rodney Dean says

    Seems it protects the buyer at the determent of the seller.

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