This article was originally published in a local magazine that I contribute to. However I thought it would be good to share it on my blog as well!
The housing market in Vancouver is hot right now. I mean really HOT. And despite what you might hear, it doesn’t appear to be cooling off anytime soon. The problem with a hot housing market is that as soon as a property gets listed, there are multiple showings with multiple offers, some (most) even over asking price… and you are left wondering how to compete. There are several things you can do to increase your chances of finding a great home within your budget, and your REALTOR® will be able to work with you on those… however the one thing you shouldn’t do is mess around with the condition of financing in your purchase contract.
Here is a typical hot market scenario played out: You have met with your mortgage broker (If you don’t have one, I would love to work with you), you are pre-approved for a mortgage and you are ready to start shopping for a house. As part of the pre-approval process we have looked at your employment (which is excellent), your credit (which is spotless) and your downpayment (which is substantial). Everything is in place and you are confident. Your REALTOR® emails you an MLS listing, property looks amazing, you view it within 6 hours and you are ready to make an offer. Then you find out that there are already 3 offers submitted and it looks like you have to put your best offer in or risk losing out.
So the question becomes, “What does my best offer actually look like?” well… usually a large deposit combined with an offer that has minimal conditions is always best, right? So you keep removing conditions until you come down to the last condition. The condition of financing. You then think to yourself “My preapproval went really well, I have a great job, I have excellent credit and a huge downpayment, why wouldn’t they lend money to me?”
Don’t make the fatal mistake of believing that mortgage financing is solely conditional on you, the applicant. You also have to understand that financing requires an in depth assessment of the property as well. So when you go and put a deposit down on a property accompanied by an unconditional offer, the second the seller accepts your offer, you are contractually obligated to purchase that property. But what happens when you can’t find a lender to finance the property? Well… you would lose your deposit and face the chance of being sued. A very ugly situation.
There are many reasons a property might not be suitable for a lender, they include: asbestos, knob and tube wiring, aluminum wiring, underground oil tanks, irregular zoning, former grow ops, former drug labs, properties with foundation issues, and so on. The truth is, it’s impossible to know why a property might be declined so here is some advice:
There is no such thing as unconditional financing, the only time you should feel confident writing an unconditional offer is when you have enough cash in the bank to cover the purchase entirely. If you lose an opportunity to purchase a property because you wouldn’t take a risk and chance losing your deposit, you are better off!