FHA And VA Amendatory Clause And What This Means For Borrowers
This BLOG On FHA And VA Amendatory Clause And What This Means For Borrowers Was PUBLISHED On April 4th, 2019
FHA and VA Loans are government-insured mortgage loans. FHA and VA are not lenders.
- They are government agencies that
insuremortgage loans that are originated and closed by private lenders
- If borrowers default on an FHA and/or VA Loan, HUD, the parent of FHA, and the VA will partially guarantee the lender against the loss of the foreclosure
- In order for the loan to be insured, lenders need to follow strict FHA and/or VA Lending Guidelines
- This includes FHA And VA Amendatory Clause
- FHA And VA Amendatory Clause is required on all FHA and VA Loans
- FHA And VA Amendatory Clause has been created and launched to protect borrowers.
In this blog, we will discuss the importance of FHA And VA Amendatory Clause.
What Is An FHA And VA Amendatory Clause
The purpose of an FHA And VA Amendatory Clause to alert home buyers, sellers, buyer’s realtor, and sellers realtor the rights of the home buyer in their rights to back out of a real estate purchase transaction in the event if the value comes in less than the purchase price.
- The executed FHA And VA Amendatory Clause gives advance notice to all parties about the right’s of the home buyer that the price of the executed contract needs to be in line with the home’s appraised value
- FHA And VA Amendatory Clause is mandatory that it accompanies the executed real estate contract on all FHA and VA home buyers
- HUD implemented the Amendatory Clause back in 1978 with the purpose of protecting home buyers from getting penalized when canceling contracts due to low home appraisals
FHA And VA Amendatory Clause mandates that borrowers are due a refund of their earnest money if the home does not appraise out.
Home Appraisal During Home Buying And Mortgage Process
Most experienced real estate agents will be right on target when listing a home.
- Realtors will instruct home sellers to list their homes at market value and not at higher values
- Homes need to meet basic security and safety standards in order to qualify for government-backed FHA and/or VA Loans
- All financed properties require a home appraisal
- Appraisers will inspect property per FHA/VA Property Standards
- They evaluate property values from recently sold comparable properties
- With FHA Loans, the home’s value is through the HUD Statement of Value
- With VA Loans, the value is given through VA Notice of Value disclosure form
The true value of a subject property is given by the home appraiser.
Contingencies In Purchase Contracts
Realtors from both sides will explain what the FHA And VA Amendatory Clause means to their clients. The FHA And VA Amendatory Clause alerts buyers and sellers that the home needs to appraise at the purchase price or the deal can be null and void. Purchase contracts will contain other contingencies such as a home inspection and mortgage contingencies. Contingencies in real estate contracts is a separate clause that gives an out for home buyers. Contingencies protect home buyers to back out of the whole deal within a certain time frame without any penalties.
Cases When Home Appraisal Comes In A Lower Value Than Purchase Contract
There are instances where a home appraisal will come in lower than the purchase price. When this happens, buyers can automatically back out an get a full refund of their earnest money deposit. The exact dollar amount on the FHA And VA Amendatory Clause needs to match the real estate purchase contract price. Home sellers and buyers can go back to the drawing table and try to re-negotiate the whole purchase price. The seller can lower the sales price to match the home appraisal. The home buyer can still decide to go with the purchase transaction and pay above the appraised value. Or both sides can settle in the middle and make the deal go through.