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Buyer Beware: What You Need To Know About Financing Conditions & Firm Offers

Buyer Beware: What You Need To Know About Financing Conditions & Firm Offers

Exterior of large brick and grey two-storey home with gardens

When it comes time to buy a home, it is important to understand all of the conditions that come with making an offer of sale. Having a financing condition as part of your purchase agreement can not only give you a legal ‘out’ for any financial liabilities, but it can also prevent you from losing your deposit should your mortgage not get approved. Let’s take a look at why a financing condition is beneficial in the buying process, and what the risks of putting in a firm offer without a financing condition are.

What Is A Financing Condition?

Essentially, a financing condition is a piece of your agreement of purchase of sale that gives you, the buyer, a period of time to confirm with your mortgage broker that your funding is approved and ready to go. Typically this period of time is about 3-7 days. After that time period, you will be asked to sign a ‘fulfillment of condition’ waiver, which means that your offer is no longer dependent on financial approval. However, should you be denied financing, your agreement is terminated.

While failure to receive a financial loan may terminate your agreement, there is a catch. Before you can simply walk away from the agreement, you must, both legally and in good faith, provide proof that your application for a mortgage was in fact denied.

Do I Need One? Or Should I Make The Offer Firm?

While each person’s idea of risks and payoffs is different, from a financial standpoint, I would suggest having a financing condition and avoid feeling pressured to place a firm offer. By including this condition in the agreement of purchase of sale, you’re covering yourself should any financial hiccups arise before locking in your new mortgage loan. For example, a denied mortgage or a mortgage approved for a lesser amount than needed. If an issue like those mentioned were to occur, should you have to return to the seller and show you can no longer proceed with the transaction, your agreement will become null and void and your deposit will be returned.

What Are The Risks of Not Having One?

Like all things in life, there are benefits and risks. In the case of a making a firm offer on a home instead of having a financing condition, the risks tend to outweigh the benefits. To begin with, not having a financing condition and failing to receive mortgage approval can mean the loss of your deposit, which can be a hefty sum of money in many cases. For example, a home purchase of $250,000 – $300,000 can require a deposit of upwards of $5,000 in many parts of Ontario.

On top of risking the loss of the deposit, not having a financing condition can also bring about some more financial hot water. If you are denied your mortgage and have to renege on your agreement, the seller can also come after you in court for additional damages. For example, if the seller takes your offer in good faith that you will come through with the financing, and declines others, only to learn that you have to back out, they can sue you for the lost sale.

While most real estate offers are conditional on you, the buyer, obtaining the necessary financing to complete the purchase, you do have the right to decline the use of a financing condition which is becoming a hot topic with the current heated housing market in Barrie and the surrounding area. However, it is important to remember that without this condition you have no coverage for any financing liabilities. Although the final transaction is dependent on more than just financing, ensuring that your money is protected should any uncertainties arise should always be a priority over the home itself. If you have any questions or concerns about whether you should include a financing condition or not in the purchase of your next home, don’t hesitate to give me a call at 705-315-0516. I am always happy to help you better understand the steps to buying a home with financial safety and security in mind.

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