Subject to Financing- A Must!
With most people who are new to real estate and looking for their first home (or
possibly second), one of the most significant times is when your offer to buy is
accepted by a seller. Unfortunately, that moment is quickly followed by stress,
as not many people know what comes next- securing financing. 99% of the time a
realtor will ask you if you have been qualified by a bank or a mortgage broker
before they write an offer on your behalf. What should be told to you, the
client, by the realtor and your mortgage broker is that you need to have a
subject to financing condition in your offer.
In order for someone to receive a mortgage from a lender, they need to meet the
lender’s (and some times the insurer’s) conditions. Usually, these all revolve
around a borrower’s down payment money, their income as well as employment, and
the property they are making an offer on. If you make an offer on a home and it
is accepted, but for example the lender doesn’t like the property because the
strata board doesn’t have enough money in their contingency fund to fix the
leaking roof in the next 12 months, they could turn down your application and
not lend you money.
If you don’t have the money, you don’t get the home. That is why you have a
subject to financing condition, so if for any reason, you can’t meet the
lender’s requirements with your income, down payment, or if the property is
unacceptable to them or the insurer, you can cancel your offer without any
hassle or loss of deposit.
What happens if you make a subject free offer? If you make an offer on a home
and it doesn’t have a subject to financing condition in it, that house is now
yours once the offer is accepted. Your deposit is no longer yours, and you have
to come up with the remaining money. If you cannot and are unable to complete
the purchase, the seller may file a lawsuit against you for damages as they have
now taken their home off the market potentially losing out on the ability to
sell their home to someone else while they waited for you to get financing.
Always, always, always have a condition in your offer that states subject to
financing and allow yourself 3 to 5 business days. If you go in without that
fail safe and it turns out you really need it, you will potentially be on the
hook and if the seller wishes, he or she can sue you for any potential losses.
Subject to financing is a must! If you have any questions, contact Shoren Konstantin at 416-218-0080 directly.