A Closer Look at the VA Amendment to Contract

VA loans feature their own unique appraisal contingency known as the VA Amendment to Contract. Both buyer and seller must sign this key document.

The Amendment to Contract contingency protects a VA buyer's earnest money if they walk away from a deal because the appraised value came in below the purchase price. Earnest money is a good-faith deposit buyers typically include when making a purchase offer.

Unlike other loan types, VA buyers cannot waive this appraisal contingency.

Low VA Appraisal Outcomes

Generally, the VA expects the Addendum to Purchase Contract to be signed and included with all contract documents at the time of the appraisal.

Here's the full text of the document:

"It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property herein, if the contract purchase or the cost exceeds the reasonable value of the property established by the Veterans Administration. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Veterans Administration."

In short, this contingency allows prospective buyers to walk away from the contract with their earnest money if the appraisal comes up short. But it also notes buyers may still be able to move forward in these cases.

Let's consider an example.

We'll say you get under contract to buy a home for $225,000. Soon after, an independent VA appraiser evaluates the property, comparing it to comparable homes that have sold recently in the area. The process concludes with a formal Notice of Value indicating the property's fair market value is $200,000.

At that point, would-be buyers have a decision to make. Mortgage lenders are going to lend whichever is less between the purchase price and the appraised value of the home.

Prospective borrowers in this example scenario could:

• Appeal the valuation using the VA's Reconsideration of Value process
• Ask the seller to lower their asking price and renegotiate in light of the lower value
• Make up the $25,000 difference in cash
• Walk away from the contract entirely and resume the home search

Every buyer's situation is different. Talk with your loan officer if your appraised value ultimately comes in lower than the purchase price.

Distressed Properties & Amendment to Contract

Talk with your loan officer if you're considering purchasing a distressed property owned by a bank or a government agency.

At Veterans United, we require every home seller to sign the VA Amendment to Contract, even if the seller is a bank or a government agency, such as HUD, Fannie Mae or Freddie Mac. These agencies aren't always willing to sign the VA Amendment to Contract when selling their foreclosures and other distressed properties.

Depending on the lender and the seller, there may be little point in pursuing specific properties if the seller ultimately refuses to sign the Amendment to Contract.