My offer is stronger WITHOUT a Financing Condition
Purchasing a home can be a very intimidating and overwhelming task. You want to purchase the property for the least amount of money possible while the seller wants to sell the property for the most money possible. Combine this with multiple offers on the same property and you can see why buyers look for the edge in their negotiating. One of the ways buyers obtain an edge is to eliminate the financing condition in their offer(Agreement of Purchase) making it more appealing to the seller. While this is a great idea if you have the ability to pay for the entire property in cash, it is not a good idea if you plan to use conventional financing.
Usually by the negotiation stage the buyer has previously arranged financing for a set amount(purchase ceiling). The purchase ceiling is based on the buyer’s income level and credit worthiness. What the buyer hasn’t realised is that they have been pre-approved for a dollar amount and not a subject property(the property they wish to purchase). The subject property is very important as this is the security on the mortgage(loan) the lender will advance. It is also a deciding factor on whether an insurer(usually for buyers with less than 20% down payment) will insure the mortgage. All lenders and insurers have subject property guidelines. If the property does not fall within these guidelines your approval will be denied. An approval request that gets denied is not a problem for the buyer that has a financing condition clause in their offer, it’s a problem for the buyer that omitted the clause since now they are legally obligated to purchase the property.
Recently we worked with a buyer who got frustrated with losing out on properties due to multiple offers. Upon their own decision this buyer decided to remove their financing condition on any future properties they planned to purchase. The next offer was presented without a financing condition and was accepted(since it was stronger that any other offer presented). The buyer had good income and great credit worthiness and we knew they would be a viable asset to any lender. It wasn’t until we received the call from the lender saying the insurer had an issue with the property. Unannounced to all parties involved the property was located in proximity to a contaminated area which the insurer was not happy with. The insurer was not prepared to insure the mortgage so financing was declined.
We did eventually manage to arrange financing for our contaminated borrower. It was the property that caused the problems not their credit worthiness. In the event you do want to remove the standard financing condition from an Agreement of Purchase make sure you speak with your mortgage broker beforehand. Your mortgage broker will be able to educate you on the pros and cons of making any changes to your pending transaction.
Happy house hunting and thanks for reading.
CP