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The Importance of 'Conditional on Financing' in Times of Rising Interest Rates
October 11, 2023 | Posted by: Bailey Simner
Picture this scenario: You stumble upon your dream home and can hardly contain your excitement as you prepare to make an offer. However, there's a critical question to ponder: Should you include a financing condition? The answer is unequivocal, especially in the current landscape of escalating interest rates.
When you submit an offer to purchase with a financing condition, you grant yourself a crucial timeframe, typically spanning 3 to 5 days. This window is imperative for securing full approval. Just like you, your lender wants to be certain about the property's value and suitability. They conduct an assessment because, ultimately, the property serves as collateral in case of unforeseen issues.
It's worth noting that a mortgage preapproval doesn't automatically guarantee the lender's acceptance of the property. Today's dynamic market introduces several factors to consider:
- The Impact of Rising Interest Rates: Recent spikes in interest rates can affect the property's affordability. Your lender might need to reevaluate your mortgage in light of these changes.
- Location Dynamics: Shifts in market dynamics can render the property's location no longer aligning with your lender's preferred criteria.
- Historical Concerns: Issues related to the property's past, such as former grow-ops, environmental problems, or zoning complications, can raise concerns.
- Appraisal Adjustments: Given the evolving market, the appraised value of the property may not align with the offer you've made.
It's essential to maintain a clear perspective and not let the thrill of homebuying cloud your judgment. While a mortgage preapproval provides a valuable guideline, it's not an absolute guarantee. Lenders may reassess your eligibility, especially if your financial circumstances or income have changed since the preapproval. Including the 'conditional on financing' clause empowers you to revisit your lender and, if necessary, withdraw your offer.
Submitting an offer without conditions exposes you to significant risk. If financing unexpectedly falls through, you could forfeit your deposit and potentially face legal action from the seller. Nevertheless, if you're determined to submit an offer without a financing condition, I can assist you in navigating this riskier path. This entails a thorough review of all relevant documents, listing information, and contacting the lender and insurer before drafting your offer. While this approach mitigates some risk, it's important to remember that there are no foolproof guarantees.
Reach out to me for guidance throughout your homebuying journey, ensuring a positive outcome even in the face of rising interest rates.
