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What is the FHA Amendatory Clause?

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The FHA amendatory clause is a contractual provision that protects homebuyers in FHA real estate transactions. It allows buyers to back out of the purchase if the home's appraised value is lower than the sales price. 

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FHA loans are mortgage loans insured by the Federal Housing Administration (FHA), created to help first-time homebuyers achieve their dream of homeownership. The program offers buyer benefits such as flexible qualification criteria, low down payment requirements, competitive interest rates, and even down payment assistance program options.

FHA home appraisals are a required part of the loan process. An FHA appraisal aims to determine the property's market value and assess its condition. They are conducted by licensed appraisers who evaluate factors such as the property's size, location, features, and comparable sales in the area. FHA appraisals are required to ensure that the property meets the FHA's minimum property standards and that the loan amount is appropriate based on the property's value, protecting both the borrower and the lender.

The FHA amendatory clause allows the buyer to renegotiate or terminate the contract without penalties or financial obligations should the appraised value exceed the selling price.

What is an FHA escape clause?

An FHA escape clause is the same thing as the FHA amendatory clause. In fact, the clause comes by many names, including:

  • The FHA Amendatory Clause
  • The FHA Escape Clause
  • The FHA Amendatory Clause
  • The FHA Amendment to Purchase Agreement
  • The FHA Purchase Agreement Addendum

But don’t worry, they are all referring to the same provision.

Who signs the FHA amendatory clause?

It is mandatory for both the buyer and the seller to sign the FHA amendatory clause. If either party refuses to sign, the FHA will not proceed with financing.

Are there exceptions to the FHA amendatory clause?

There are no exceptions to the FHA amendatory clause if you're obtaining an FHA loan. The clause is a standard requirement for FHA-insured loans intended to protect the buyer's interests in the transaction. However, consulting with a real estate professional or lender is always advisable to understand any specific circumstances or exceptions that may apply to your situation.

Written by:
Crystal Shifflett
Loan Coordinator

Crystal’s experience spans many aspects of the homebuying process, including closing and title work, but perhaps her own personal experience of purchasing several homes across state lines helps her connect with and advocate for homebuyers.

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