February 12, 2019
What do sellers need to know about FHA home loans? There are several areas that you should know when negotiating with a first-time home buyer or an experienced real estate owner.
One excellent example; when the home is appraised for an FHA mortgage loan, if the appraisal values the home at a dollar amount lower than the sale price, the borrower cannot be forced to complete the transaction. She has the option to walk away from the loan.
This option is described in HUD 4000.1 which instructs the lender that a clause must be inserted into any sales contract involving an FHA mortgage that includes the following;
“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 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 blank space is reserved for the sale price of the home. In cases where the appraisal amount is lower than the amount listed in the clause, “The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation.”
That appraisal amount 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 himself/herself that the price and condition of the property are acceptable.”
…Which basically means that it is up to the borrower to hire a home inspector and that no one should rely on appraisal results to inform them as to the condition of the property.
The lender is required to insure the actual dollar amount of the sales price stated in the contract “has been inserted in the amendatory clause” and any change to the sales price requires a revised clause.
Sellers should also know that it’s possible to contribute up to six percent of the sales price of the home toward a borrower’s closing costs as an enticement to close the deal. However, sellers CANNOT contribute any amount of money toward the borrower’s down payment.
These issues are very important in the course of the FHA loan application and approval process. Ask your real estate agent about how these issues can and sometimes do affect the transaction-you’ll be glad you did.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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