In today’s real estate market many people have been waiving the financing clause in their offer to purchase a home. Before 2017 adding a financing clause was what most Realtors® would recommend adding to your offer along with an inspection to ensure the home didn’t have any problems that could be a big expense to you later on down the road. Having the clause in the offer to purchase, gives the buyer the option to back out prior to sealing the deal if the issues found are too big of a deal breaker.
What Is A Financing Waiver?
When you put in your offer you would add a financing waiver to protect yourself. The waiver’s purpose is to give you the opportunity to get approved for a mortgage loan with the bank, prior to finalizing the offer to purchase a home. It is very risky to offer to buy a home without one of these, because if you have not done your homework on how much of a loan your lender will approve you for, and you sign an offer without a financing clause, and your lender decides not to fund your new mortgage you are still legally obligated to make good on your offer. Even if you have pre-qualified for a mortgage, it doesn’t necessarily mean that you can get approved for the full amount. (If you want to learn more about the difference between being pre-qualified and pre-approved click here.) Once documents are provided and presented to the mortgage companies and you are pre-approved for a mortgage – that is when you truly know how much funding your lender is willing to give you. There are some cases where you may not be approved for the full amount and may have to put in more money towards the down payment, or you may have to find another lender for the remaining amount, have a co-signer or worse – you lose out on the home you wanted because the financing didn’t work out.
Why Is It Important to Include This Waiver?
- It gives the buyer the option to retract their offer should financing not work out. This is especially important as you have to give a deposit with your offer. Should you waive the financing clause in your offer and things don’t work in your favour – you lose that deposit.
- You’re taking a substantial financial risk. If your offer is accepted without the financing clause in place, and you didn’t have a firm lender commitment in place, and then you don’t get approved for the amount needed to purchase the home – this could mean big problems for you and the seller. Most of the time the seller is relying on the sale of their home in order to purchase another one, therefore if your financing falls through it causes a domino effect. In most cases the seller probably purchased another home, which is another sale that is now affected.
- The seller can sue you! Yes, they really can. Not only do you lose your deposit but you can also be sued for damages and breaching the contract as every offer to purchase the home is in fact a legally binding agreement.
Things to Consider Before Putting In An Offer
- It is always best to meet with a mortgage broker before you go house hunting. Having an idea of what you can afford will really help when going to look at homes. You will have a much better understanding of what price range you can be looking in along with what you can expect to roughly be paying each month for the size of mortgage you are planning on borrowing.
- Save more than a down payment! There are many extra costs upon closing the deal of a house that you may not be thinking about. Things such as land transfer tax if you are not a first time home buyer, lawyers’ fees, property taxes (you may need to reimburse the seller what they have already paid towards their property taxes), hook up fees, condo fees may have been prepaid by the seller which you will need to reimburse, home inspection fees, etc. When planning to purchase a new home, it’s a good idea to have an additional savings of 1%-4% of what the purchase price of the home is to cover all these pop-up expenses. With a little extra in the plans you’ll not only be able to make the payments needed but if you don’t need everything you’ve set aside for closing expenses, you might have a little spending money to add a few elements to your décor once you’ve moved in.
- Do your homework! When it comes to buying the right home for you and your family, it’s important to not get wrapped up in the excitement, forgetting about all the little details that need to be taken care of in the process. Ask any questions you have along the way and don’t be afraid to ask for further clarification after that. Making sure you fully understand the process and each step will eliminate a huge amount of stress.
Buying your home is one of the biggest investments you will make in your life. Knowing the steps to take to ensure a stress-free transaction is made is what I am here to help you with. If you are looking at buying a home or would like to run the numbers to find out what you could afford don’t hesitate to give me a call at 705-315-0516. I am always here to help and will make the buying process a much more enjoyable experience for you.