Financing conditions: are they really necessary?

Financing conditions: are they really necessary?

You've been searching for what seems like a lifetime to find the home of your dreams, then you finally find it and you want to put in an offer. We sit down, figure out the numbers and draft up the Purchase Agreement to include terms and conditions to protect your interests, one of which is the Financing Condition.

A financing condition is one of the most commonly used and important conditions, and it's there to protect the Buyer by telling the Seller that your offer to buy their property is conditional on you obtaining financing.  You will already have a “Pre-approval” in place with your financial institution or mortgage broker but there will still be a length of time required by lenders to satisfy this condition, generally 10 business days.  Most people do not have cash readily available to be able to purchase a new home.  In this situation, the financing condition becomes the most important condition for your protection in the contract.

But what if you can’t obtain financing? Here are some common scenarios:

  • If you put an offer on a property with a financing condition and find out during the due diligence process that you don’t qualify for some reason for the purchase, you can be released from the contract and not have to move forward to purchase it.  If you have paid a deposit, this would be returned to you as you were unable to satisfy the financing condition.
  • In obtaining mortgage financing, you have a responsibility to act in good faith. You cannot simply change your mind and back out of the sale, saying that you were unable to get financing.  If a Seller wanted to push the issue in this case, they could ask for proof that you were unable to obtain suitable financing.
  • If you decide to buy a property without adding in a financing condition to your contract, and then find out that the lender won't lend you the money, you could be in serious trouble. You then have the very real risk of losing your entire deposit, with the possibility of being sued for damages as well as there is a good chance the Seller has made future plans based on this sale, which now affect their potential move and purchase.

There are many ways to get pre-approval for a mortgage so unless you have the cash, you can and should make an offer with a financing condition.  Many times, buyers feel like they won’t be able to present a competitive offer with a financing condition but if you consider the consequences of not having it, it is a pretty easy decision.

I can help and advise you with all of these situations and get you in touch with mortgage professionals that can help with the process; contact me today.


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