An FHA/VA financing addendum is a legally required real estate contract component for any Buyer(s) using that loan type, for the purchase of a residential property. The clause was instilled in 1978, and the addendum allows Buyers certain securities in the purchase a home, which further helps to protect the Buyer under certain circumstances. Additionally, this also ensures both government entities are also protected by not providing funds for a home that has high risk and prevents negotiations by the buying and selling party directly unbeknownst to the lender.
Is this Addendum Required?
Both the Department of Veterans Affairs (VA) and the Federal Housing Association (FHA) require these addendums be part of the loan process. The main purpose of the addendum is to ensure a Buyer is provided a loan at the appropriate value. However, it also serves as an additional testament that all terms and conditions of the contract are “true and correct” in accordance with Federal law. Failure to be a true document could result in the forfeiture of the Real Estate Agents license. If the original purchase agreement failed to incorporate the FHA / VA Financing disclosure, as many now tend to do so, one will be required to be added prior to loan closing.
How Does a FHA/VA Financing Addendum Protect The Buyer?
The FHA/VA Financing Addendum helps protect the Buyer (and the entities to an extent) in that, neither entity will issue a loan for a home that does not meet the required conditions. The Buyer can then terminate the agreement, receive any deposits back or potentially even negotiate a lower sales price. If the Buyer would like to move forward with the purchase of the home, they may do so. However, it will be the Buyers responsibility to obtain the remainder of the funds through a separate avenue.
What is an Appraisal?
A home appraisal provides the true and accurate value of the property to the Buyer, Seller and lenders. This should be an unbiased process completed by an impartial licensed third party who is highly trained. While both parties may have a known appraiser, they would like to use, many lenders now require the use of an unknown unbiased appraiser. Therefore, providing an objective view to any major issues the home may have (i.e., HVAC, roof, etc., not to be confused with a home inspection), the impact of the issues on the overall property assessment and value. Additionally, the appraisal may include information on other homes for sale or recently sold in the area with the same or similar information and location of the property (comparable homes or comps), to provide the Buyer reasoning behind the pricing. The Buyer will be responsible for the cost as it is a requirement from lenders in order to fund the loan appropriately.