FHA Amendatory Clause
The FHA amendatory clause is a mandatory addendum to purchase contracts for properties financed with FHA-insured loans. The clause protects buyers by providing the right to cancel the contract without penalty if the property appraises below the contract price.
What the Clause Provides
- The buyer is not obligated to purchase if appraised value is less than contract price
- The buyer's earnest money must be refunded if the buyer cancels due to a low appraisal
- The clause cannot be waived by the buyer
- Required by HUD for all FHA-insured transactions
Buyer Options When Appraisal Is Low
- Renegotiate: Ask the seller to reduce the price to the appraised value
- Pay the difference: Bring additional cash to cover the gap between appraised value and contract price
- Cancel: Terminate the contract and receive a full earnest money refund
- Request reconsideration: Submit additional comparable sales to the appraiser
Impact on Sellers
Sellers accepting FHA offers face appraisal risk. If the appraisal is low, the seller may need to reduce the price, negotiate, or risk losing the buyer entirely. This is one reason some sellers prefer conventional financing offers.
Related Terms
- Closing — Where the final price is settled
- Contract — The purchase agreement containing the clause
- Earnest Money — Deposit protected by the clause
Barnes Walker Title Services
Barnes Walker Title closes FHA-financed transactions throughout Florida, ensuring proper inclusion of all required HUD addenda. Submit a title inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC