Breakdown of the new VA and FHA Addenda

I've now had some time to digest the new FHA and VA addenda and they are available for download at NVAR.com and elsewhere. I understand that some of the vendors don't have them in their systems yet, but they will soon.

Before I launch into a Paragraph by Paragraph breakdown, a couple of important points should be made up front.

1) The Forms do not contain an option to proceed without a Financing Contingency when you are using FHA or VA financing. You may still elect to proceed without a financing contingency. We on the Standard Forms Committee are working on a library of useful "clauses" that have found there way in and out of our standard forms over the years. Rather than redoing all of our forms every time the market changes, these clauses will be made available on line as suggested language of the association. A clause to make the contract non-contingent on FHA or VA financing will be among the first included. I would imagine you could simply take the language of Option 2 from Paragraph 10 of the Regional Sales Contract and insert FHA or VA as appropriate, before the word financing.

2) The Forms suggest to some that the Purchaser must give the Seller the option to lower the price in the event of a low appraisal. If you read more carefully, though, you'll see language giving the Purchaser the right not complete the transaction, at no penalty, if the appraisal comes in low.

Over the next few days I'll post more . . .and I'll try to moderate your comments quickly so we can get a little bit of a discussion going over these new forms.

FHA FINANCING ADDENDUM

NOTICE:
THE PARTIES SHOULD NOT INCLUDE A SEPARATE APPRAISAL CONTINGENCY IN THIS CONTRACT, SINCE THE FEDERALLY MANDATED APPRAISAL LANGUAGE FOR FHA LOANS IS CONTAINED IN THE FHA AMENDATORY CLAUSE BELOW. - This is just a reminder not to use the Conventional Loan Appraisal Contingency Forms, which DO require the Purchaser to accept the property if the Seller is willing to lower the Sales Price to the Appraised Value.


1. FIRST DEED OF TRUST: Buyer will obtain a First Deed of Trust loan in the amount of $__________________ amortized over _____ years at a
Fixed or an
Adjustable rate bearing (initial) interest of _____% per year or market rate available. Buyer shall pay upfront and monthly mortgage insurance premiums (MIP) as required by FHA regulations. Subject to lender’s approval, Buyer reserves the right to finance any upfront MIP, in which event such
amount shall be added to the loan amount.

In addition to filling out basic loan terms, such as How Much, How Long a Term, Fixed or Adjustable, and the Interest Rate this paragraph states that the Buyer pays the up front mortgage insurance premium (MIP), and that it may be financed. This is necessary because the loan amount shown on Page 1 of the Sales Contract which defines the Specified Financing, generally does not include the MIP so that the numbers on Page 1 (Down Payment + Total Financing = Sales Price) will add up correctly. This provision allows the buyer to increase the loan amount without disturbing the “Specified Financing”

Tomorrow: Paragraph 2: FINANCING CONTINGENCY and Paragraph 3. APPRAISAL PROVISIONS:

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