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Buying a home in the Greater Toronto Area (GTA) can be competitive and high-stakes.

People often overlook a critical element in offers, or are pressured to remove it; the financing condition. 

Waiving this condition might make your bid more attractive in a hot market. 

But, it also exposes you to big financial and legal risks. 

You must understand these risks, as it is key before deciding whether to include a financing condition in your offer.

Now, let’s dive in.

A financing condition is a clause in your offer to purchase. 

It gives a specific period, usually five business days, to confirm your mortgage approval for the home. 

This condition is intended to protect you as a borrower and buyer. 

It lets you withdraw from the offer without penalty, if your financing is denied or it’s not what you were expecting.

In a competitive market, sellers prefer offers with no conditions. 

This makes them more appealing and likely to be accepted. 

Buyers desire to secure a home in a sought-after area. 

This desire can lead them to waive their financing condition, despite the associated risks.

Low Appraisal Value

When a lender approves your mortgage, they check if the property is worth the offer price. 

They do this via appraisal. 

If the appraisal comes in lower than expected, you may need to increase your down payment to cover the difference.

Issues with Condition of Property

Even if your mortgage is approved, the property’s condition can bring surprises. 

If the property has big problems, like structural issues, old electrical systems, or pest infestations, your lender may reevaluate the property’s value or the loan terms. 

Without a financing condition, you’re unable to renegotiate or withdraw your offer based on these findings. 

It could leave you unable to get a mortgage, or getting a mortgage under different terms. 

You’d also be on the hook for costly repairs or improvements that were not expected.

Mortgage Approval Issues

A pre-approval does not guarantee a final mortgage approval. 

Lenders conduct a thorough review of your financial situation, and any changes or undisclosed issues can lead to denial. 

Without a financing condition, you risk being committed to a purchase without the necessary funds.

Lower Than Expected Loan Amount

Lenders may approve you for less than expected. 

This will require a larger down payment. 

This can strain your finances and potentially derail the purchase.

This could be caused by a lower appraisal or based on the lender’s review of your financial situation.

1. Losing Your Deposit: If you need to back out due to financing issues, the seller can keep your deposit, typically around 5% of the purchase price.

2. Forced to Complete the Purchase: Without a financing condition, you might be legally obligated to complete the purchase, even without a mortgage, putting you in a tough financial position.

3. Legal Penalties: You could be sued by the seller for any financial losses they incur due to the failed transaction.

4. Losses: If the seller has to list the property again, and sell for a lower price, then you might be on the hook for the difference between your agreement and what they end up selling for.

Get a mortgage pre-approval before house hunting. 

It can lower risk by understanding your borrowing capacity. 

However, it’s not a foolproof solution. 

If you’re going to remove the financing condition, you’ll need to assess risks linked to each property you are considering.

Having a solution in place for the unexpected might be what gives you the comfort to remove the condition. 

A family member that is ready to co-sign, or help you with a larger down payment.

Consider a construction loan to improve the property before getting a traditional mortgage.

Being prepared for potential outcomes is what allows you to mitigate the risks, and understand potential outcomes.

Consult Your Mortgage Broker

Working with an experienced mortgage broker is invaluable. 

They can guide you through the complexities of the mortgage process. 

They can assess your risk tolerance and help you make informed decisions. 

They can help you decide about including a financing condition in your offer. 

A broker’s expertise can clarify the process, and make sure you understand the risks of waiving this crucial condition.

Protect yourself by making informed decisions, even in a fast-paced market. Your financial future depends on it.

The GTA’s real estate market is competitive. 

There’s intense pressure to present an offer without conditions. 

But, waiving a financing condition is risky. 

It can cause financial and legal hardship. 

Always ask your mortgage broker for help to understand the risks and make a plan that fits your finances and risk tolerance.