Obtaining an FHA-insured mortgage involves unique processes and paperwork requirements. However, two aspects often create confusion among homebuyers - the FHA Amendatory Clause and Real Estate Certification. In this comprehensive guide, we will demystify these items and provide you with the necessary understanding.
Key Takeaways:
- The FHA Amendatory Clause overrides any purchase terms prohibiting FHA financing.
- It ensures that HUD rules take priority over local laws or customs.
- The clause must be added to the contract before applying for an FHA mortgage.
- Once added to the purchase agreement, the Federal Housing Administration financing clause cannot be removed.
- The Real Estate Certification verifies the absence of fraud, conflicts of interest, or inflated sales price in the context of a home loan.
- It must be signed by buyers, sellers, and agents at closing before the deal can be finalized.
- Violating the terms related to the sales price or financing condition can jeopardize the home loan or even lead to prosecution.
- Mandatory forms required for Federal Housing Administration financing can be accessed on the HUD website or through the lender.
The FHA Amendatory Clause: What Is It?
The FHA Amendatory Clause is a necessary addition to the purchase agreement when financing a home with an FHA loan. It serves to protect the buyer and align the contract with HUD requirements.
This clause amends the purchase agreement by stating that any conflicting terms in the contract are subject to change per HUD/FHA guidelines for insured mortgages.
Why is the FHA Amendatory Clause Required?
The FHA Amendatory Clause serves an essential purpose:
- It guarantees that FHA loan requirements precede local and state laws or customs, providing consistency for FHA-insured mortgages nationwide.
- It ensures that if terms in the purchase contract contradict HUD guidelines, the HUD/FHA requirements will override these terms.
- It protects the buyer if the agreement contains clauses prohibited by HUD for FHA financing.
The FHA Amendatory Clause ensures that you can proceed with your FHA loan without issue, even if the purchase contract contains contradictory provisions.
What Does the FHA Amendatory Clause Say?
Here is typical language included in the FHA Amendatory Clause:
"It is agreed that, regardless of anything else in this contract, the buyer is not required to complete the purchase of the property described here or pay any penalties, including the loss of earnest money deposits, unless the Federal Housing Commissioner, Department of Housing and Urban Development, or the Direct Endorsement Lender has given the buyer a written statement, by HUD/FHA rules, stating that the buyer can buy the property. The purchaser shall have the privilege and option of proceeding with the 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 condition of the property. The purchaser should satisfy themselves that the property's price and condition are acceptable."
When Should the Amendatory Clause Be Added?
The FHA Amendatory Clause must be added to the purchase agreement before the buyer submits their FHA loan application. This ensures that any contradictory terms are nullified upfront.
The amendatory clause may be incorporated directly into the purchase agreement or added as a supplement or amendment. But it must be made part of the original contract to be enforceable.
Can the Amendatory Clause Be Removed or Modified?
The FHA Amendatory Clause cannot be removed or modified once added to the purchase contract. Any edits to the clause itself would invalidate it.
However, the seller or buyer can request changes to any other terms in the purchase contract through the normal negotiation process. Only the amendment Clause itself remains unchanged.
This solid understanding of the FHA Amendatory Clause will protect you as a buyer when using FHA financing. Now, let's look at the other essential requirement: real estate certification.
What is the Purpose of the Real Estate Certification?
The Real Estate Certification is a document signed by the buyer, seller, and real estate agents, stating that nothing unethical or illegal occurred in the home purchase transaction.
It certifies that everyone involved followed regulations, no conflicts of interest existed, and nothing was done to artificially inflate the home's value.
Why is Real Estate Certification Required?
FHA wants to ensure that the buyer, sellers, and agents acted properly and legally during the transaction. The Real Estate Certification guarantees:
- No one was paid fees or commissions exceeding FHA limits.
- No side deals or inducements happened "under the table."
- Nothing unethical or fraudulent occurred.
- The appraisal properly reflects the home's fair market value.
- All parties are independent of each other and unrelated.
This requirement protects the buyer and provides complete transparency in the deal.
Where to Find the Real Estate Certification Forms
The Real Estate Certification forms can be found on HUD's website or provided by the lender. The forms include:
- Real Estate Certification (Form HUD-92564-CN)
- Amendatory Clause/Real Estate Certification Addendum (Form HUD-92900-A)
Reading these forms in advance will help you understand what you are agreeing to.
Now, armed with this knowledge, you can feel confident about these unique FHA requirements. Understanding the Amendatory Clause and Real Estate Certification will give you peace of mind that your FHA purchase is protected. While the documents may initially seem ambiguous, they are straightforward once you grasp their purpose.
FAQs about FHA Amendatory Clause & Real Estate Certification
Does the Seller Have to Sign the FHA Amendatory Clause?
Yes, the FHA amendatory section needs to be signed by the seller. The FHA amendatory clause is a part of the sales contract for an FHA-insured loan. This section states that the property's buying price must be at least the same as its assessed value. By signing this section, the seller acknowledges this rule and agrees to sell the property at or above the estimated value.
When Does the FHA Amendatory Clause Need to Be Signed?
The Amendatory Clause and Real Estate Certification require signatures from all involved parties, including buyers, sellers, listing agents, and selling agents. Borrowers need to sign the FHA amendatory clause before signing the purchase contract.
It must be signed at the closing table when all parties are present. Electronic or fax copies are not permitted.
What Happens If Someone Can't Sign?
If one party cannot physically attend the closing, the Certification can be signed before the finale begins. However, it must be signed by an authorized agent, such as a title company representative or real estate attorney. All parties need signatures to buy, sell, or represent themselves.
What if the Terms are Violated?
If the terms of the Real Estate Certification are violated, it could jeopardize the homebuyer's FHA mortgage insurance. Violations could also result in civil or criminal prosecution.
FHA takes this document seriously to protect the consumer and the program's integrity.
Conclusion
In conclusion, the FHA Amendatory Clause and Real Estate Certification are crucial in ensuring transparency and protection for buyers and sellers involved in an FHA-insured loan transaction.
Requiring the clause to be included in the purchase agreement gives buyers peace of mind, assuring them that they will not be held financially responsible for any discrepancies between the appraised value and the agreed-upon purchase price. The real estate certification is a formal acknowledgment from all parties involved that there are no hidden agreements or side deals.
So whether you're buying or selling a property with an FHA loan, make sure you understand and comply with these requirements to avoid any potential legal or financial consequences. Remember, knowledge is power!
SOURCE: Understanding the FHA Amendatory Clause Insights on the FHA and VA Amendatory Clause Exploring FHA Loan Contingencies