Finance Condition - To Remove or Not?

In a competitive real estate market you might find yourself in a multiple-offer situation when purchasing a property. You have found your dream home and you really want to buy it, but so do many other people want to buy it. Some people believe that waiving your financing condition will make your offer more appealing to the seller and give you a better chance at winning the bid.

This is a tough decision and one that you need to understand.

Many people turn to their mortgage broker for advice on if they should remove this financing condition. They are looking for "guaranteed" financing.

The short answer is that there is no such thing as guaranteed financing. Period.

There are a lot of variables in being qualified for a mortgage. And each variable represents some level of risk. The best you can do is to understand those risks and try to mitigate or minimize those risks. Once you understand these risks then you can make a decision as to remove or not to remove the condition of finance.

But be very clear that if you remove the financing condition, this is YOUR risk that you are taking. You cannot put it onto anyone else. No professional is going to advise you to remove your rights. The reason for the financing condition is to protect you. If you cannot accept the risk then you should not be removing the financing condition.

Probably not what some people want to hear. Though, let's understand some of these risks:

  1. Credit History and Score - Talk with a mortgage broker about your credit history and score to get an understanding of what your specific report says about you in the eyes of a lender. You should be able to get a fairly good idea of where you stand with lenders.

  2. Income - There are so many different types of income and lenders have different requirements for each type. Talk to your broker to understand your income and what lenders will accept. Not all income is accepted by lenders.

  3. Debt servicing ratio - Mortgage qualification relies on two mathematical formulas: (a) Can you afford the mortgage, and (b) can you afford the mortgage plus your other debt obligations. This is key to understand with your broker how these Ratios are calculated for your specific situation.

  4. Property - The property is the security for the mortgage. It is critical that the property you purchase is in good marketable condition and that the property has the required market value. Appraisers determine market value. For example, if you purchase a house at $400,000 and the appraiser values it at $380,000, the lender will use the lower of market value or purchase price, in this case $380,000.

There is a lot of detail in each of these risk that need to be discussed and understood with a professional mortgage broker. Everyone's situation is unique when it comes to mortgage qualification and you really need to have that detailed discussion.

The best any lender can offer is a conditional financing pre-approval. It is conditional that your credit does not change, that your income does not change, that your debt serving does not change, that the property you purchase is of good value and good condition. Also, there are many other conditions that might apply to your situation.

Hopefully, you can see that there is no guarantee in mortgage financing but that you can minimize the risks by understanding your individual qualification criteria.

Contact Us
For more information on pre-approvals, contact your local Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com