For first time home buyers, the process of purchasing your very first home can often be described as an interesting mix of thrills, excitement and terror. After all, your home is one of the largest purchases and investments that you will make in your lifetime. It’s also one of the most complex, which means it’s important to ensure that, as a first-time home buyer, you understand your options and your responsibilities.
As discussed in our recent blog article, it’s very common for buyers to make a conditional offer when interested in buying a home or condo. Typically, these conditions involve 1.) a clear home inspection report 2.) the sale of the current home, if applicable and 3.) financing. If any of these conditions are not met within the specified time frame, the agreement falls through and any deposit made is returned to the potential buyer. Conditional offers are a safeguard that help protect the parties involved, but they usually take a few days or weeks until finalized. Although it makes good sense to add conditions to an offer, real estate newbies may be wondering if it ever makes sense to leave one or more of these common conditions out, particularly the financing clause.
Why would I waive my financing condition?
Initially, you may be asking yourself why anyone would remove a financing condition from their offer. There are a few scenarios where a buyer may be inclined to do so. Imagine that you have found the perfect home for your growing family. Not only is it situated in the ideal location, it has everything you have ever wanted in a dwelling and even comes in at the right price. There’s just one problem – this place is so perfect there are multiple offers on the table. To avoid entering a costly and stressful bidding war with other potential buyers, some prospective buyers may choose to remove the financing condition from their offer to make it more competitive and get in on the purchase.
Are there are risks involved?
Although it may make your offer more attractive, it’s definitely not a good idea to remove your financing condition without very careful consideration. There are considerable risks involved when buyers choose to remove financing from their offer. If, for some reason, your financing falls through, you will lose the deposit you’ve placed on your dream property. Moreover, in addition to losing your deposit, sellers may choose to sue you for damages associated with the termination of the offer (and there’s a chance they may win!).
Is it OK to waive financing if I’m preapproved?
Many people are under the impression that it’s safe to waive the financing condition after they have been pre-approved for a mortgage. It’s important to remember that approval doesn’t always mean things are 100 percent set in stone. In particular, the amount you are pre-approved for may not necessarily be the amount that you are fully approved for, which could leave you scrambling to make up the difference between what you offered and the mortgage loan you’ve received.
What else should I know?
When considering whether removing the financing condition from your offer is the way to go, it’s also important to understand market trends and conditions in your area. As we discussed in another blog, recent changes in our local market, including a dip in prices and a slow down on sales suggest that things may be shifting from a seller’s market to a buyer’s market instead. This means that buyers may have a little more clout to leverage when it comes to purchasing, which also suggests that removing a financing condition may not be required.
Wondering about pre-approval versus approval? Do you have questions about whether it’s a good idea for you to remove the financing condition from your offer? As an experienced mortgage broker serving Barrie, Orillia, Midland, Wasaga Beach, Collingwood, Bradford and Alliston, I can answer your questions related to mortgages and financing. I can also work with you to find the best mortgage solution. Contact me today at (705) 315-0516, and let’s get you into that dream home!