FHA/VA (like most bank I might add) will not guarantee a loan if the house doesnt appraise.
It also basically says that the
In plain english, they want to make sure everything is "above board" and that the loan you are applying for as well as your down payment is the only financing being arranged for this home. No "secret" loans or payments are allowed!
The Federal Housing Authority provides mortgage insurance for home loans to consumers. FHA-backed mortgage loans differ from regular mortgage loans in several ways. For example, lenders may have less stringent qualification requirements for FHA-backed loans because the FHA's mortgage insurance reduces the risk lenders incur. Similarly, lenders may offer more competitive interest rates for FHA loans because of the reduced risk. Lower interest rates cost less than higher ones. Moreover, FHA-backed loans may require a smaller down payment than conventional loans. The down payment required for an FHA loan is only 3%. In addition to the financial benefits, the FHA puts in place requirements for the lender that serve the best interests of the borrower. The FHA Amendatory Clause is an example of such a requirement.
The FHA Amendatory Clause is intended to ensure that prospective home buyers with FHA-backed loans receive important information in a timely manner about the house to be purchased. In particular, the Amendatory Clause stipulates that if buyers have not received information about the appraised value of the home they intend to buy, the buyers are not obligated to purchase the home.
The FHA Amendatory Clause protects buyers by stipulating that if the required appraisal information is not delivered per the terms of the clause, buyers shall not be required to forfeit earnest money they have deposited for a house if they elect not to buy the house.
The FHA has determined that the FHA Amendatory Clause is most effective when the seller is a traditional seller such as a home's current owner, a home builder or in some cases a real estate investor. The clause has been found to be less effective when the seller is a non-traditional seller such as a seller at a foreclosure sale, a governmental agency or a non-profit organization. For this reason, the FHA Amendatory Clause may not be a required part of the documentation for FHA-backed loans in certain circumstances.
The FHA enforces the FHA Amendatory Clause by requiring that it be part of the mortgage loan documentation in order for the FHA to provide mortgage insurance. The form of the clause is fairly standard, and a sample copy of the text is available for review on the FHA website.
In addition to the protection offered by the FHA Amendatory Clause, the FHA provides beneficial services to home buyers. These benefits include access to HUD-approved foreclosure avoidance counselors and a National Servicing Center consumers can call toll-free (888-297-8685) if they are concerned that the lender of their FHA-backed loan is not complying with FHA requirements