FHA/VA loans: What law requires of buyers, sellers


When a homebuyer needs financing insured by the Federal Housing Administration or the Department of Veterans Affairs, the real estate sales contract must include an addendum that gives the buyer rights and obligates the seller for additional costs.

The seller's real estate broker should explain the FHA/VA addendum so that the seller knows what to expect.

Typically, the buyer is not obligated to buy the property if the sales price exceeds the value established from an appraisal. If the property is not appraised at the sales price, the buyer may cancel the contract and have his deposit money returned or can complete the sale without regard to the amount of the appraised valuation. But the FHA or VA will insure the loan only for the appraised amount, so the buyer would need to cover the difference with cash.

The addendum obligates the seller to make all appraiser-required repairs if the cost does not exceed an agreed-upon amount. If repairs exceed that amount, the seller can terminate the contract unless the buyer agrees to pay the excess repair cost or the parties agree to share the cost.

The seller must pay certain items of the buyer's closing costs, such as document preparation fees. These costs may total $300 to $400.

Sometimes, a seller will offset his anticipated extra costs by increasing the contract sales price. As long as the property appraisal is not less than the contract sales price and as long as property conditions standards are met, the FHA or VA will insure the loan for a qualified buyer.

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