The Federal Housing Authority (FHA) home loan program accounts for as many as 50% of the mortgages issued to home buyers in the U.S., according to industry sources.
The FHA program also benefits home sellers because of the favorable financing available to prospective home buyers.
FHA loans have a number of unique steps and requirements buyers must take before the loan can be approved. One of them is signing an FHA amendatory clause / real estate certification form.
What is the FHA amendatory clause?
When a buyer is purchasing a home with an FHA loan, the buyer, seller, and both real estate agents must sign a form called the Amendatory Clause/Real Estate Certification Form.
In many places across the United States, the FHA amendatory form is built directly into the sales contract.
However, if the amendatory clause is not included in the sales contract, all parties must sign the amendatory form as an addendum to the sales contract for the loan to be approved and the deal to go through.
Example: FHA Amendatory Clause
It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement issued by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement
Lender, setting forth the appraised value of the property of not less than $ _________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.
What's the purpose of the FHA amendatory clause?
The reason the Federal Housing Administration requires the FHA amendatory clause is to protect the buyer(s) against a low appraisal.
The FHA amendatory clause states that the buyer cannot be required by the seller to purchase the home if the appraisal is lower than the sales price listed on the sales contract.
The amendatory clause also states that the buyer can still go through with the purchase if they want, even if the appraised value is lower than the agreed-upon sales price.
But if the buyer decides not to continue with the sale due to low appraisal, the amendatory clause requires the seller to return the buyer's earnest money deposit.
The FHA amendatory clause also states that the appraisal will determine the maximum loan amount provided by the lender. This language prevents the lenders from increasing the loan greater than the value of the property that secures it.
Home sellers shouldn't be afraid of FHA Amendatory clauses
Some home sellers are reluctant to sign the FHA amendatory form because they feel it's an undue government regulation or that it may jeopardize their position in the sale.
But these sellers should read the amendatory form line by line and will see that there is nothing ominous about the form. It just says you cannot force a sale if the appraised value is lower than the sales price.
If you disagree with the language in the form and choose not to sign it, then you will lose the sale and as previously stated, lose 50% of the prospective home buyers for you house.
What is the real estate certification form?
The borrower, seller, and the selling real estate agent or broker involved in the sales transaction must certify that the terms and conditions of the sales contract are true to the best of their knowledge. They also must certify that any other agreement entered into by any of the parties in connection with the real estate transaction is part of, or attached to, the sales agreement.
The real estate certification states that the seller, buyer, real estate agent (if applicable) and anyone signing the sales contract acknowledge that all term and conditions of the sale are included in the sales agreement. In other words, there are no side agreements not specifically stated in the sales contract.
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FAQ about the FHA amendatory clause
Is the FHA amendatory clause required?
The amendatory clause is required for an FHA home loan that does not meet the allowable exceptions.
When is the FHA amendatory clause not required?
The amendatory clause is not required on:
- HUD REO sales
- FHA’s 203(k) loan program sales in which the seller is Fannie Mae or Freddie Mac
- The Department of Veterans Affairs (VA)
- Rural Housing Services
- Other federal, state, and local government agencies
- A lender disposing of REO assets
- A seller at a foreclosure sale
- Those sales in which the borrower will not be an owner-occupant (for example, sales to nonprofit agencies)
When does the FHA amendatory clause need to be dated?
The amendatory clause must be provided to the buyer prior to signing the sales contract if the amendatory clause is not contained in the sales contract.