The FHA Amendatory Clause Explained — and Why Your Lender Needs a Separate Signature
You're under contract on a home with an FHA loan, and things are moving along. Then your lender sends over another form — the FHA amendatory clause — and asks both you and the seller to sign it. The agent might say, "That's already covered in the contract." The seller might wonder why they're signing something that seems to favor the buyer. And you're left wondering whether this is really necessary.
It is. And misunderstanding this step is one of the most common causes of avoidable delays in FHA transactions. Here's what the FHA amendatory clause actually does, why it exists, and why skipping (or delaying) the separate signature can stall your loan.
What the FHA Amendatory Clause Says in Plain Language
The FHA amendatory clause is a one-page form that says this: if the home appraises for less than the agreed purchase price, the buyer is not obligated to go through with the sale — and the buyer gets their earnest money back.
That's it. The clause doesn't force anyone to do anything. It doesn't cancel the deal automatically. It just gives the buyer a clear exit if the home's appraised value doesn't support what they agreed to pay.
The Federal Housing Administration requires this clause on every FHA purchase transaction. Both the buyer and the seller have to sign it. It's not a suggestion — it's a condition of the loan.
Why Does FHA Require This?
FHA loans are government-insured. If a borrower defaults, the FHA — and by extension, taxpayers — bears part of the risk. So FHA doesn't want buyers locked into paying more than a property is worth. The amendatory clause is how the program protects the borrower from overpaying based on an inflated contract price.
FHA Amendatory Clause vs. a Standard Appraisal Contingency
This is where confusion tends to come in. Most purchase contracts include an appraisal contingency — a clause that lets the buyer renegotiate or walk away if the appraisal comes in low. So if that's already in the contract, why does FHA need its own form?
Because they serve different purposes, and FHA's requirement is more specific.
| Feature | FHA Amendatory Clause | Standard Appraisal Contingency |
|---|---|---|
| Required by | FHA / HUD — federal program rule | Negotiated between buyer and seller in the contract |
| Can it be waived? | No — required on all FHA purchases | Yes — buyer can waive it in competitive markets |
| Who signs? | Both buyer and seller (separate form) | Both parties as part of the purchase contract |
| Earnest money protection | Buyer gets earnest money back if appraisal is low and they choose to walk away | Depends on contract language — varies by state and deal |
| Applies when | Appraised value is below the purchase price | Appraised value is below the purchase price (if included) |
| Can be removed to strengthen an offer? | No | Yes — some buyers waive it to compete |
The key difference: even if a buyer waives the appraisal contingency in their contract (which is more common in hot markets), the FHA amendatory clause still applies. It can't be negotiated away. That's a meaningful protection for FHA borrowers.
The Colorado Wrinkle: Why It Feels Redundant but Isn't
If you're buying a home in Colorado, there's an added layer of confusion. Colorado's standard real estate contract already includes amendatory clause language — it's built right into the contract form that most agents use. So buyers and sellers often assume signing the contract covered this requirement.
It didn't — at least not in the eyes of the FHA lender.
From our experience: Even though amendatory language is already in the Colorado contract, we've seen clients surprised when their lender asked for a separate signature. It feels redundant, and we get that. But it's a protective step the FHA requires — the lender needs a standalone signed form in the loan file. Without it, the loan can't move to closing.
This catches agents off guard too. Some push back, thinking the existing contract language should satisfy the requirement. But FHA guidelines don't leave room for interpretation here. The separate form has to be signed, and it has to be in the file.
The practical takeaway: if you're buying with an FHA loan in Colorado (or Florida, or anywhere), check with your lender early and get the amendatory clause signed alongside the purchase contract. Don't wait for the lender to chase it down weeks later — that's when it becomes a delay.
What Happens When the Appraisal Comes in Low
The amendatory clause only matters if the appraisal comes in below the purchase price. If the appraisal matches or exceeds the contract price, this form never comes into play — it just sits in the file.
But if the appraisal is low, here's how things typically play out:
| Step | What Happens | Details |
|---|---|---|
| 1 | Appraisal report delivered | The appraiser determines the home's value is lower than the agreed-upon purchase price. The lender shares the results with the buyer. |
| 2 | Buyer reviews options | The buyer can: (a) renegotiate the price with the seller, (b) pay the difference out of pocket, or (c) walk away from the deal. |
| 3 | Renegotiation (most common) | Buyer and seller agree to a lower price matching the appraisal, or they split the difference. A new agreement is signed. |
| 4 | Buyer covers the gap | The buyer pays the difference between the appraised value and the purchase price in cash at closing. The lender still bases the loan on the lower appraised value. |
| 5 | Buyer walks away | Under the FHA amendatory clause, the buyer can cancel the contract and receive their earnest money deposit back — no penalty. |
Most of the time, a low appraisal leads to renegotiation, not a canceled deal. Sellers often agree to reduce the price because they don't want to start over with a new buyer. But the point of the amendatory clause is that the buyer always has the option to walk away. That option can't be taken off the table in an FHA transaction.
Why Sellers Sometimes Push Back
From the seller's side, the FHA amendatory clause can feel one-sided. They're being asked to sign something that gives the buyer a guaranteed exit if the appraisal doesn't match the price. In a market where sellers hold more bargaining power, some prefer buyers using conventional loans because those borrowers can waive their appraisal contingency.
Here's the honest truth: the amendatory clause is non-negotiable for FHA. If a seller doesn't want to sign it, the FHA buyer can't get the loan. So in highly competitive markets, this can be a genuine disadvantage for FHA borrowers.
That said, many sellers don't have a problem with it once they understand what it actually says. It doesn't guarantee a low appraisal. It doesn't give the buyer a free pass to back out for any reason. It only activates if the property appraises for less than the contract price — and even then, the buyer might choose to move forward anyway.
A Note for VA Borrowers
If you're using a VA loan, there's a similar requirement called the VA Escape Clause (or VA Option Clause). It works the same way: the buyer isn't obligated to complete a purchase if the appraised value is lower than the contract price. Like FHA's version, it can't be waived.
How to Avoid Delays with the FHA Amendatory Clause
The clause itself is simple. The delays happen when people don't know about it, forget to sign it, or argue about whether it's really needed.
Here's how to keep things on track:
- Sign it early. Ask your lender for the form as soon as you're under contract. Get both signatures at the same time as the purchase agreement, or as close to it as possible.
- Tell the seller's agent upfront. If the listing agent knows you're using FHA financing, they should expect the amendatory clause. No surprises.
- Don't assume the contract covers it. Even in Colorado where similar language is in the standard contract, the lender still needs the separate signed form. Assuming otherwise is the #1 cause of delays on this issue.
- Work with a lender who communicates clearly. A lender who sends you a checklist early — including the amendatory clause — will save you from scrambling later in the process.
If you're comparing different mortgage loan programs and weighing FHA against other options, the amendatory clause is worth factoring in — not because it's a burden, but because it affects how sellers perceive your offer.
The Real Timeline: What to Expect When Getting a Mortgage
The amendatory clause is one piece of a bigger process. If you want to understand the full timeline of an FHA purchase — from pre-approval to closing — we've mapped it out so you know exactly what's coming and when.
See the Home Loan TimelineFrequently Asked Questions About the FHA Amendatory Clause
The loan can't proceed. FHA requires both the buyer and the seller to sign the amendatory clause. If the seller won't sign, the buyer would need to either switch to a different loan type (like a conventional loan, if they qualify) or walk away from the deal. This is rare — most sellers sign once they understand the clause is a standard FHA requirement, not something unique to their transaction.
No. The clause only applies if the appraised value comes in below the purchase price. It doesn't give you a general right to cancel the contract. If the appraisal matches or exceeds the price, the amendatory clause doesn't change your contractual obligations at all.
They're related but not the same. An appraisal contingency is a negotiable part of the purchase contract — buyers can include it or waive it. The FHA amendatory clause is a federal requirement that can't be waived. Even if a buyer removes the appraisal contingency from their contract (to make a more competitive offer), the FHA amendatory clause still applies and still protects the buyer.
There's no hard deadline in FHA guidelines, but the best practice is to get it signed at the same time as the purchase contract or within a few days. The lender needs the signed form in the loan file before closing. Waiting until late in the process creates unnecessary risk — especially if the seller's agent isn't expecting it.
Yes, VA loans have a similar requirement called the VA Escape Clause (or VA Option Clause). Like the FHA amendatory clause, it protects the buyer if the appraisal comes in low and cannot be waived. The VA's home loan program includes this as a standard borrower protection.