Today, we’ll be talking about the ‘Mortgage Condition’, what it is, what happens when you add it to an offer to buy a home, and what are the benefits versus drawbacks.
Having a mortgage condition means the offer to buy a property is only valid on condition that you, the buyer, can secure a mortgage to buy it.
Let's start by taking a look at why you might want to have a mortgage condition in with your offer.
- Advantages of a Mortgage Condition
- Disadvantages of Using a Mortgage Condition
- Getting Pre-Approved is the Best Way to Go
- Conclusion
Advantages of a Mortgage Condition
Putting an offer in on a home is serious business because, once accepted, it becomes a legally binding contract.
This means that if the seller accepts your offer, you are now legally obligated to go through with the transaction. Normally, that's not a bad thing, because you wouldn't put in an offer on a home you didn't want to buy.
However, it can become tricky if you are unable to secure a mortgage to carry out the purchase. Once an offer is in place, you can be taken to court if you fail to complete the transaction. Other penalties include losing your deposit, which can be a substantial amount.
This is where the mortgage condition comes in. It is possible to put in an offer on a property on condition that the buyer is able to secure an adequate mortgage to buy it.
If the buyer cannot get a mortgage, the offer contract becomes void, the deposit is returned, and the buyer goes on their way.
Disadvantages of Using a Mortgage Condition
While the added flexibility and safety of a mortgage condition can be great for buyers, it also carries some disadvantages with it.
The main disadvantage of this condition is the fact that sellers may not put as much value on your offer.
This is because sellers know that you'll be able to back out of the transaction. This also introduces a factor of whether or not the seller is confident that you'll be able to obtain the mortgage and fulfill the condition.
If the seller has to choose between a non-conditional offer and a conditional one, they are likely to go with the non-conditional offer even if it is at a higher price. Sellers enjoy their peace of mind too, so there is strong incentive to go with an offer that is clear cut and has no conditions attached.
This means that adding the condition in may lower your chances of having your offer successfully accepted, and especially so if there is competition.
Getting Pre-Approved is the Best Way to Go
If that's the case, what should buyers do? The good news is that there is a way to get the best of both worlds.
As a buyer, you can get pre-approved for a mortgage amount before you go out shopping for a home. This way, you have the safety of having funds secured, you are clear about your budget and what you can afford, and you can confidently go out to view homes.
This achieves a number of great things for buyers. You will know what homes you can afford and where to focus your shopping, which saves time and avoids a lot of detours and false-starts. And, of course, you will be able to put in an offer without a mortgage condition while still having the confidence and safety of knowing that your funds will be ready to go.
In most situations, it's recommended to go with the pre-approval instead of using a mortgage condition.
It's not to say that a mortgage condition is never useful, but it should only be used if absolutely necessary. In all other scenarios, pre-approval is a more efficient and logistically smooth way to go about it.
Conclusion
There you have it. That was the mortgage condition, along with it's pros, cons, and alternatives.
If you have any questions about the home buying process, and how to prepare for it, our team is always happy to help, so feel free to reach out!