Should You Remove A Financing Condition In Multiple Offers?

Are you planning to buy a house and wondering whether to remove a financing condition from your offer? This decision can have significant implications for your home-buying experience and your finances in the long run. While waiving the financing condition may help you stand out in a competitive market, it poses risks you should be aware of before making a final call.

This guide will walk you through the pros and cons of removing a financing condition when buying a house in Ontario. We will also provide essential information on the Ontario real estate market to help you make an informed decision.

What is a Financing Condition?

First, let’s clarify what we mean by a financing condition. A financing condition is a clause in a purchase agreement that makes the sale of a property contingent on the buyer securing a mortgage or other financing. This condition typically includes a specific timeframe (usually 5 to 7 days) for the buyer to obtain a mortgage pre-approval or a firm commitment from a lender.

A financing condition aims to protect the buyer from potential financial risks and ensure that the property purchase is feasible. If the buyer fails to secure financing within the timeframe specified in the condition, they can back out of the deal without penalty.

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Pros of Removing a Financing Condition

1. Competitive Advantage: In a competitive housing market like Ontario, buyers may feel pressure to remove the financing condition to make their offer more appealing to sellers. Removing the financing condition may make your offer more attractive to the seller and increase your chances of getting the house you want.
2. Faster Closing: A financing condition can add several days to the closing process, as the buyer needs to obtain a mortgage pre-approval or firm commitment from a lender. By removing the condition, you may be able to close the deal faster, which can be beneficial if you are in a hurry to move in or if the seller wants to close the deal quickly.
3. Savings on Appraisal Costs: When a buyer includes a financing condition in their offer, the lender may require an appraisal of the property to determine its value. This appraisal can cost several hundred dollars and is usually paid by the buyer. By removing the financing condition, you can avoid this expense.

Cons of Removing a Financing Condition

1. Risk of Losing Your Deposit: When you remove a financing condition, you essentially commit to buying the property regardless of whether you can secure financing. If you fail to obtain a mortgage or other financing and cannot close the deal, you risk losing your deposit, typically 5% of the purchase price.
2. Risk of Overpaying: Without a financing condition, you may be tempted to offer more than you can afford to ensure your offer is accepted. This can lead to overpaying for the property and putting yourself in a precarious financial situation.
3. Risk of Undetected Issues: A financing condition typically includes a home inspection contingency, which allows the buyer to back out of the deal if significant issues are found during the inspection. Without a financing condition, you may miss critical issues with the property, such as mold, foundation problems, or faulty wiring.
4. Additional Financial Burden: When you remove the financing condition, you essentially take on more financial risk. If you cannot secure financing, you may need to find alternative funding sources or put down a larger down payment to compensate for the lack of a mortgage, which can be a significant financial burden.

How to Make the Decision

Now that you know the pros and cons of removing a financing condition, how do you make the decision? Here are some factors to consider:

1. Your Financial Situation: Before you remove the financing condition, ensure you have a solid understanding of your financial situation. Do you have a stable income? Do you have enough savings for a down payment and closing costs? Do you have good credit? If you can answer yes to these questions, you may be in a good position to remove the financing condition.
2. Housing Market Trends: Take a look at the housing market trends in your area. Is it a seller’s market, with more buyers than homes for sale? If so, you may need to remove the financing condition to make your offer more competitive. However, if it’s a buyer’s market with more homes for sale than buyers, you may have more leverage to keep the financing condition in your offer.
3. Interest Rates: Keep an eye on the interest rates in your area. If rates are low, you may be able to secure a favorable mortgage. However, if rates are high, you may need to remove the financing condition to ensure that you can secure financing.
4. Property Value: Make sure that the property you are buying is worth the price you are paying. Do your research and compare prices of similar properties in the area. If you are overpaying, you may want to keep the financing condition in your offer.
5. Risk Assessment: Finally, assess your risk tolerance. If you are comfortable taking on more financial risk and are confident that you can secure financing, you may want to remove the financing condition. However, if you are risk-averse and want to protect your finances, you may want to keep the financing condition in your offer.

Conclusion

Removing a financing condition when buying a house in Ontario can be a tough decision. While it may help you stand out in a competitive market and close the deal faster, it poses significant risks, such as losing your deposit or overpaying for the property. To make an informed decision, consider your financial situation, housing market trends, interest rates, property value, and risk tolerance. With careful consideration, you can make the right decision for your home buying journey.

Elevate Real Estate Group (Stewart Blair, Brittany Wurfel, Jeremy Odland, & Victoria Rowe)

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