The housing market is hot...which isn't necessarily a good thing for everyone.
If you've been shopping for a home lately, there's a good chance that you've fallen in love with a home and written an offer only to get outbid by another buyer...so frustrating.
Then you find out that the seller of the house accepted an offer that didn't have a finance condition in it...but your Mortgage Specialist advised you to always include one in any offer you write...what gives?
After several unsuccessful offer attempts, you'll start to feel defeated especially if you're losing to other people who aren't including finance conditions in their offers.
You might feel tempted to scrap the finance condition and roll the dice without one.
Here's what you need to know before you write an offer with no finance condition included:
A finance condition (a.k.a. condition of financing) protects the buyer making the offer in case the Mortgage Default Insurers (CMHC, Canada Guaranty, or Sagen) decline the application for any reason. Some examples as to why they might decline the application might be that they suspect that there's fraud involved in some way, the home was flagged as a former grow-op, the home was involved in a crime at some point in it's life, they uncover some other information about the home that was not disclosed from a previous sale, etc.
If your down payment is 20% of the purchase price or more, and therefore Mortgage Default Insurance isn't required, then there's a good chance that the Lender will request a full appraisal of the property.
If an appraisal is done and the report comes back at a lower value or the appraiser discovers a major fault such as knob and tube wiring, aluminum wiring, asbestos insulation, foundation issues, etc., the Lender can decline the deal.
If any of these things happen to you and you don't have a finance condition in your offer, you will have to back out of the deal and lose your deposit...and possibly face a law suit.
If you have a finance condition in your offer, you are able to back out of the deal, get your deposit back and move on to the next house.
Of course it's frustrating to lose out on what you feel to be the perfect home, but unfortunately there is no way to guarantee an approval on any property in advance of making an offer on it.
The finance condition is there to protect you in case anything goes wrong.
Think about it this way; if an Insurer or Lender has a problem with the property you want to buy, shouldn't that be a red flag? Maybe you don't want it either?
The decision is ultimately yours but as your Mortgage Specialist, I wouldn't be doing my job if I didn't do whatever I can to protect your interests in one of the largest purchases you'll ever make.
Feel free to reach out to me anytime if you'd like to discuss this further or have any questions at all.