What You Need to Know About the Financing Condition

The Agreement of Purchase and Sale (APS) is the official document when you buy a property and includes all of the terms and conditions of an offer as well as any conditions to protect you as a buyer. A breach of one of these conditions allows the buyer to back out of the purchase deal and receive a full refund of their deposit. The most common type of condition is the financing condition.

What Is a Financing Condition?

The financing condition essentially states that your offer is conditional on you obtaining financing for the purchase. The wording of the financing condition works in the buyers favor since it states that the terms and conditions (read: payments, interest rate) of your financing must be satisfactory to you, the buyer, rather than being based solely on your ability to obtain financing at all.

A financing condition can save you from being sued by the seller for breach of contract in the event that your bank charges a higher-than-anticipated interest rate due to a low credit score so that you can no longer afford the payments, or if you don’t qualify for a loan at all. Of course, you must search for financing in good faith and cannot use the automatic out just because you’ve changed your mind about the house.

If you don’t have a financing condition and can’t secure the appropriate financing for your purchase, you may end up losing the deposit you made to the seller when they accepted your offer on their home. A financing condition will ensure that you don’t lost that significant chunk of money in case you don’t qualify for the mortgage on the house or on the off-chance that you waiver your condition too early.

Your financing condition should range between seven and ten business days so that you have enough time to arrange your finances with a lender. They must review all of your documents and complete the appraisal to ensure that you meet all of the lender conditions before you waive your financing condition or it expires. Once your time limit expires, you will sign a ‘fulfillment of condition’ or ‘waiver’ and your offer is no longer contingent on your finances.

Why a Financing Condition is Important

A financing condition gives you leeway to confirm details with your lender and will protect you in many circumstances. For example, most banks nowadays want to approve you for a specific home, so they often send their own appraisers out to the property to ensure that it is worth what you told them. If something goes wrong in this process, you have a legal out thanks to your financing condition.

Most of the time, you’ll visit your mortgage broker so they can review your situation and try for a pre-approval. However, you won’t be fully approved for the mortgage until the lender has also reviewed the property you’re purchasing, so the financing condition gives you time to seek the mortgage approval with all of your up-to-date information.