The new mortgage rules have made it increasingly difficult for many buyers to qualify for and obtain a mortgage is therefore essential that every agreement of purchase and sale contain a clause making the offer conditional on the buyer obtaining satisfactory financing. Even if the buyer has been approved for financing I’ve seen many situations refinancing issues and problems can delay or even cancel the closing.
Is important to note that a preapproval or approval from a financial institution is not a guarantee that the lender will fund the buyer its mortgage funds. The reason for this is simple as many approvals come with conditions attached to them such as satisfactory appraisal, verification of income, down payment, and proof of employment income. It is crucial to ensure that the buyer works with an experienced and trustworthy mortgage agent or broker. Keep in mind that the lender can change its mind and pull the plug on financing at any time even on the date of closing if it is not satisfied that all of the outstanding conditions set out in the commitment have been fully complied with. Therefore, leaving the financing aspect of the transaction to the last minute is a guaranteed recipe for disaster.
Another issue that buyer should consider is determining the amount of funds they will actually receive from the lender. Mortgage commitments vary from lender to lender and some may contain fees or charges which are deducted from the actual mortgage amount being advanced to the lawyer. Examples of these fees CMHC fees, appraisal fees and interest adjustment. Many buyers fail to realize that these deductions reduce the amount of funds that your lawyer will receive on closing thereby requiring the buyer to make up the difference on the closing date. The buyer should therefore be prepared to have a reserve of additional funds in case it is needed to close the transaction.
Finally, the most important thing that the buyer must do to avoid financing problems is to ensure that your lawyer receives the mortgage instructions well before the closing date. We advise our clients to tell their lenders to provide us with the mortgage instructions at least 10 days prior to closing to avoid funding delays which can delay your closing and end up costing you unnecessary expenses and stress.
All offers should be made conditional on financing unless the buyer instructs you not to do so. If your buyer instructs you not to make the offer conditional on financing, it is prudent to confirm these instructions in writing or have the buyer sign an OREA form which makes it clear that the buyer understands the risk in making the offer without a condition on financing.