The Importance of ‘Conditional on Financing’ In Times of Rising Interest Rates

posted: January 2, 2024

Imagine this: you’ve come across the perfect home, and you’re thrilled to make an offer. But, here’s the key question—should you include a financing condition? The simple answer, especially in today’s environment of rising interest rates, is a categorical yes!

When you submit an offer to purchase with a financing condition, you’re granting yourself a vital window of time, typically 3 to 5 days. This timeframe is essential to ensure that you receive full approval. Your lender, much like you, wants to feel confident about the property’s value and suitability. They will perform an assessment because, ultimately, the property serves as their collateral in case of any unforeseen issues.

A mortgage preapproval does not automatically guarantee that the lender will accept the property. In today’s dynamic market, there are various factors at play:

Impact of rising interest rates: The recent surge in interest rates could alter the affordability of the property. Your lender may need to reassess your mortgage considering these changes.
Location: The property’s address may no longer align with the lender’s preferred location due to changes in market dynamics.
Historical factors: Concerns over the property’s history, such as former grow-ops, environmental issues, or zoning complications, can raise red flags.
Appraisal adjustments: Given the shifting market, the property’s appraised value might not correspond with the offer you’ve made.

It’s crucial not to let the excitement of homebuying cloud your judgment. While a mortgage preapproval serves as a useful guideline, it isn’t set in stone. Lenders may reassess your eligibility, particularly if your financial circumstances or income have evolved since the preapproval. Including that ‘conditional on financing’ clause empowers you to revisit your lender and, if necessary, withdraw your offer.

Submitting an offer without conditions can expose you to substantial risk. If financing unexpectedly falls through, you could lose your deposit and potentially face legal action from the seller. However, if you’re determined to submit an offer without a financing condition, I can help you navigate this risky path. This involves conducting a review of all related documents, listing information, and reaching out to the lender and insurer before drafting your offer. While this approach can alleviate some risk, it’s important to remember that there are no 100% guarantees.

Contact me to guide you through your homebuying journey to ensure it ends on a positive note, even in the face of rising interest rates.