In many cases, buying a home is a hassle. Finding the right house, negotiating a price, finding the right lender for your home loan . . . the list goes on. But what if a few things get mixed up in the process and the house was sold to you at a higher price than it was actually worth? That’s where the VA escape clause comes in for veteran borrowers. In basic terms, this escape clause, also known as the VA amendatory clause, allows a VA buyer to remove themselves from the loan contract if it turns out that the home they’re buying is appraised at a lower value than what the seller is selling it at. This affects both the buyer and seller and is a great way to avoid paying more on your house than you should if you’re the buyer.
How Appraisals Affect the Escape Clause
Appraisals are meant to work in your favor. The appraiser will check for potential safety hazards and anything that has fallen into disrepair. However, the occasional appraiser is a little nit-picky. He or she might slow the purchasing process by requiring unimportant items (such as slightly cracked pavement) to be worked on before the loan can close. Even so, the appraisal will prevent you from purchasing a house that will prove problematic in the future. The appraiser will also determine the actual value of the house compared to the selling price. If the selling price is higher, this could help you as the borrower in negotiations to get the seller to go lower. If they won’t go any lower, the VA amendatory clause will allow you to withdraw from the contract.
Requirements Associated with the Escape Clause
VA regulations dictate that the VA escape clause form must be added to the borrower-seller contract if it isn’t already included, or else the loan will not fund. But this clause isn’t just a nice way out of paying more money for your house than it’s worth. Another VA requirement states that a VA loan cannot cover more than what is listed on the Notice of Valuation (NOV) created by the appraisal. That means that if the buyer continued with purchasing the house despite its high price, he or she would have to cover the extra money by themself without help from the home loan.
VA home loans aren’t the only loans that include amendatory clauses. FHA loans also includes an amendatory clause in their contracts, and the borrowers, the sellers, and the real estate agents or brokers generally must sign the forms for each amendatory clause. This form is usually signed at closing.
At Low VA Rates, we do everything to ensure that our veteran clients get all the benefits they have earned through their service. Although the VA escape clause is a disadvantage for the seller in some situations, it does ensure that the veteran does not have to pay more than their new house is worth. To get started on your own VA loan application, call us now.