How To Fill The FHA Financing Addendum Step By Step
The FHA Financing Addendum is a form that must be fully completed before extending a mortgage loan insured by the FHA (Federal Housing Authority) (Source). This agreement is concluded between the seller and the purchaser of the home (Source) after the buyer has fulfilled all the mandatory FHA loan requirements with the loan limits defined for each year (Source).
- Filling of the document. The purchaser, that I assume it is you, the reader, and the seller, are the subjects to conclude this document. Preferably, this FHA financing addendum has to be filled out with the presence of your mortgage loan broker.
- Complete the first page: Normally a two pages document, on page one, there is a declaration of Written Statement. This statement provides the seller an adequate notice of the intent of the prospective purchaser to buy the home. Likewise, you will complete the duration of the contract (term or length of the mortgage loan contract), rate of interest, the attributes of the mortgage loan (adjustable type, variable type or fixed type), the amount of the mortgage, the address of the home and of course the current date.
- If you, as the purchaser, decide for the Written Statement after the completion of the Addendum, then, purchaser and seller will perform an agreement for the signature of a Cancellation Letter if finally, the financing happens to be falling through.
- Complete the second page of the form: This includes the sale price of the home (sometimes this information will be in the first page of the FHA financing addendum form), the processing fees, the declaration of which party will perform the payment of the reinspection fee and for how much time the rate will be maintained without changes. This is usually referred to as “lock the rate” for an agreed period of time.
- Copies of the signed document will be furnished to the property seller, the purchaser, and the FHA lender. I have seen also photocopies for the mortgage broker. You, as the buyer should retain this form, that now is signed and is a legal instrument and keep it along with all the records regarding the property and the mortgage loan.
Check The Calculations For The FHA Financing Addendum
In the FHA financing addendum, there are some quantities to introduce regarding the monthly mortgage insurance, the down payment, and the base loan amount. I would like to ensure that you know how these numbers are calculated. Therefore, you will be able to understand how are they completed into this Addendum.
Consider the following purchase price, minus the typical 3,5% down payment (it can be more in cases of the identity of interest between the parties) so that we have finally a base loan amount
- $ 275,000 Purchase Price
- x 96,5 % To Calculate the after considering the typical 3,5 % down payment.
- = $ 265,375 Base Loan Amount After The Calculation Of The Down Payment.
So we would take the purchase price of $ 275,000 and with a standard down payment, we reach the base loan amount there.
Now, with the base loan amount, we will calculate the upfront mortgage insurance.
We are going to take the base loan amount that you just came up with times 1.75 percent. This calculation gives you the number of upfront mortgage insurance that goes on your Addendum form.
- $ 265,375 Base Loan Amount
- x 1.75% FHA upfront mortgage insurance
- $ 4,644 This is the FHA upfront mortgage insurance.
Now we will calculate the total loan amount. For this, you have to add the FHA upfront mortgage insurance to the previously calculated base amount. So this is
- $ 265,375 Base Loan Amount + $ 4,644 FHA upfront mortgage insurance = $ 270,019 Total Loan Amount.
Now we will have to calculate the monthly mortgage insurance, for which we will take the final loan amount times 0.85 percent, then divided by 12. This calculation provides us monthly mortgage insurance of 191 dollars with 26 cents that is as simple as it gets.
- $ 270,019 Total Loan Amount.
- $ 2,295.16 divided by 12 months in the year gives us $ 191.26
I hope that now it is clear for you, as a buyer, what is this Addendum and how are the calculations performed.
We have interesting articles about non-conventional mortgage loans. The basic ones we will recommend to you are stated income loans, where we discuss if they are currently legal or not, how can you obtain one, and the situation of these loans in California. We are also covering other non-conventional mortgages, such as the ITIN mortgages, luxury home financing that is a figure similar to the jumbo loans, the no ratio loans that do not consider the debt-to-income ratio during the underwriting process, and those loans offered by Funding For Flipping.
If you are into more conventional mortgages such as FHA mortgages, I suggest you read the following related articles described below.
We explain the FHA loan requirements completely, with the current limits for this year. We also go through the appraisal guidelines, and moreover, we are worried about the peeling paint and why it can be an issue.
Completing forms is necessary, so we also study the number format of an FHA case and how to submit an FHA file, how to complete the form HUD 92900, the form for the FHA notice to the homeowner, and the FHA Financing Addendum.
Regarding special housing programs, I would like to include the FHA Back To Work Program.