Hazards of Waiving Mortgage Financing Conditions

In the heat of a bidding war it might be tempting to waive a condition of financing to obtain an edge over (or merely keep up with) other bidders. This isn’t always the wisest move – especially if you’re prone to emotional bidding.

Even if you’re preapproved for a mortgage, it’s not guaranteed that you’ll receive financing. Only once your lender (and mortgage default insurer, if you’re putting down less than a 20% down payment) examines the details of the property (including purchase price, taxes, condo fees, etc.) will you know where you stand in terms of financing.

If you’ve grossly overpaid for your new home – and blown all previous comparables right out of the water – you might be in trouble. If you had a 5% down payment, and you were preapproved to spend up to $500,000, it might seem that a home listed at $450,000 is within your price range. The problem is, if similar homes in the area have sold for $385,000, the bank may opt to loan you 95% of $385,000, which means you would have to track down the remaining financing elsewhere.

One of the best ways to avoid this scenario is to do your research. Before embarking on a bidding war, ask your real estate agent to research comparable properties in the area to find out what the home’s true value is – and make a pact not to go excessively beyond that number. If possible, try to find another way to get a leg up over other bidders – such as offering a quicker closing date.

This actually happened to one of our customers a few years ago. She had great credit, a fantastically well-paying job, but she bought a home on reserve land in BC that only had twenty years remaining on the lease. There were so many problems with the property that someone who would otherwise qualify with one hand behind her back got declined EVERYWHERE and lost her deposit because she made an unconditional offer. Don’t make a very expensive mistake and don’t let your real estate agent pressure you into an unconditional offer unless you’re prepared for the worst.