1. Why is a financing condition important?
Is buying without a financing condition a good idea? Usually not, but it depends on your personal situation. First of all, you need to know why these conditions are important.
If your bid on a property is accepted, you and the seller draw up a sale contract. It sets out the conditions of the sale (including the sale price and supply date). The contract also contains conditions precedent. They set out the circumstances under which the sale does not proceed. The financing condition is one of these circumstances, and it’s actually included in most sale contracts as standard.
As a buyer, the financing condition gives you a specific period – usually between 4 to 6 weeks – to obtain financing for a specific amount (generally the purchase price). If you cannot get the financing in this period, the sale is overturned, and you will not have to pay the seller substantial compensation. This is a useful escape route for a number of reasons.
When you submit a bid, your financing is not yet certain. Sometimes you won’t get the mortgage you’re after, for example if the provider thinks your income is too low to cover the home expenses, or if they do not want the home as security for a loan because there is something wrong with its foundations or structural state. Changes in your personal circumstances can also prevent you getting financing, such as loans you are unaware of, losing your job, divorce, or becoming unable to work.
The three-day thinking period buyers have is often too short to work this out.