What Is an FHA Amendatory Clause and Why Should You Care?

by Gina Pogol
June 2nd, 2010
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The FHA amendatory clause must be added to most real estate purchase agreements when the property will be financed with an FHA mortgage. It’s put there to protect you, the buyer, in case your real estate agent neglects to include certain basic protections in your offer. Here’s what it says:

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.

This means that you, the buyer with an FHA mortgage, cannot be forced to follow through with the purchase in the event that the property does not appraise for at least the sales price, no matter what language the rest of the contract contains.

What if the Seller Refuses to Sign the Clause?

Purchasing property with an FHA mortgage means the seller must agree to certain things, like paying costs that buyers using FHA loans are not allowed by law to pay. Your offer should include the fact that you plan to finance with an FHA loan, and the seller should cooperate if he or she has agreed to allow you to purchase with FHA financing. An FHA loan will not be allowed to close and fund unless the amendatory clause has been signed by all required parties.

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