Do HUD homes require an Amendatory Clause?

First a little story -- What is it and what does it mean?

The Federal Housing Administration (FHA) was created in the wake of the Great Depression by the National Housing Act of 1934. FHA insures mortgages originated by approved lenders (see list of approved lenders at hud.gov), guaranteeing reimbursement should the homeowner fail to repay the debt. This insurance gives the lender confidence to offer more terms that are advantageous to the buyer, such as lower closing costs and a smaller down payment. Borrowers pay an up-front premium and monthly mortgage insurance fees that make up the FHA insurance pool of funds. Since the subprime mortgage market failed in 2007, borrower reliance on FHA has grown rapidly. As of August 2012, FHA loans constitute one-third of home loans.

FHA requires an amendatory clause be made part of the sales contract to purchase a home. This form, typically known as the FHA Amendatory Clause/Real Estate Certification Form, informs the borrower of the appraised value of the home they are buying and amends any aspect of the sales contract that may require a buyer to forfeit earnest money, pay a penalty, or contribute additional funds to close in the event a property fails to appraise at the contract sales price

When purchasing a home with an FHA loan, the lender must ensure that the property serves as sufficient collateral for the amount it lends. An FHA appraisal determines the home’s value. The appraised value in turn determines the maximum mortgage amount HUD (not to be confused with HUD home) will insure. Should a borrower enter into a contract for an amount above the home’s value, the buyer may back out of the transaction or renegotiate the sales price because of the amendatory clause. Buyer, seller and real estate agent signatures are required on the FHA Amendatory Clause/Real Estate Certification Form.

Should the buyer and seller choose to revise the sales price, a separate amendatory clause for the new price is not required. The clause is not required for certain property types, such as real estate owned by HUD or lenders; sales by Fannie Mae, Freddie Mac, the Department of Veteran’s Affairs; or properties not intended for owner-occupants. So an Amendatory Clause is only for those intending to occupy the property.

So the quick answer to, “Does HUD require an Amendatory Clause on HUD Homes?”  The answer is NO.

For more information, you can reach me at BrandiNewland@remax.net