In this post, we are going to be highlighting the main points found in the VA Amendatory Clause, which is also called the VA loan escape clause. If you want to sift through the legal jargon or want more details, this can be found in 38 U.S.C. 501, 3703 (c)(1).
The VA Amendatory Clause reinforces the mission of the Department of Veterans Affairs, which is to take care of the veteran regarding their VA home loan benefits.
Before going into the VA Amendatory Clause, let’s talk about earnest money.
What Is Earnest Money?
These are the funds that a buyer conveys to the seller as good faith money towards the transaction. Earnest money works as a deposit and the funds are held jointly by the buyer and seller in a trust.
Earnest money can range from $500-$5,000, depending on which market you live in. It’s a good portion of money to have based on a projected purchase price.
Before Purchasing a Home
When purchasing a home, there are two sets of numbers that need to be determined before a transaction can take place:
- Purchase price – The buyer and seller negotiate and come up with an amount.
- Value of the home – This will be the total value of the home and this is determined by an appraiser.
The Department of Veterans Affairs has a group of appraisers across the nation that they’ve veted. These appraisers are used to determine what the value of a home is.
So the mortgage company doesn’t pick them, the buyer doesn’t pick them, and the seller doesn’t pick them. The Department of Veterans Affairs picks the appraiser, and this helps keep out unwarranted biases.
If we here at Low VA Rates need an appraiser in a certain state, we’ll reach out to the Department of Veterans Affairs and they’ll find an appraiser in close proximity to a certain location.
How Earnest Money & The VA Amendatory Clause Work
Let’s run through an example on how earnest money and the VA Amendatory Clause can work:
- Let’s say, between negotiations, the purchase price of the home you’re interested in comes to $100,000.
- As your lender, we’ll contact the VA for them to send out an appraiser to the property.
- The appraiser will come back with a reasonable value and the appraisal will be confirmed and supported by one of our underwriters.
- Now we’ll say that the value comes back at $100,000. That means there’s no issue and the transaction can go forth. Or, if the value comes back at $105,000, that means there will be $5,000 in equity on the home.
What Happens When the Value Is Less Than the Purchase Price?
In some cases, the value could come back less than what the asking price is on the home and this means your loan wouldn’t cover the total amount needed.
Now we’ll say the value is appraised for $95,000, which means there’s a $5,000 difference. There are three ways this can be handled:
- Behind the VA Amendatory Clause, this means you do not have to go through with the contract and your earnest money will be refunded and you can start looking for another home. However, you won’t get a refund if you had a home inspection done.
- The real-estate agents can negotiate and bring down the asking price to match the value.
- Or, if you really like the home, you can pay the $5,000 difference. If you choose to do this, we only ask that you write a statement explaining that you know the terms and that you still want to proceed with the transaction. It’s very doable and we’ve seen this happen before.
VA Amendatory Clause Final Thoughts
As you can see, the VA Amendatory Clause is very helpful to you as a veteran. It’s there to help you use your VA home loan benefits and it decreases some of the risks involved when purchasing a home.
If you have any questions or concerns, feel free to contact us here at Low VA Rates. We’re happy to assist you in any way. We want to make sure you’re able to use your benefits because you deserve it.