In hot real estate markets, it’s common for both buyers and agents to consider having no subjects to financing when making a purchase offer.
It’s important to realize, however, that no professional is in a position to legally advise you to enter into a real estate transaction with no subjects, especially no subject to financing.
This is a personal choice that you must carefully consider. Understanding the risks involved will help you make an informed decision.
Keep these three points in mind when making the choice with which you will be most comfortable:
1. Regardless of whether you have secured a rate hold / pre-approval, the lender has the right at any time to decline the property. This can occur for a number of reasons including but not limited to: value, condition, wiring, tanks, strata documents, zoning, work completed without permits, full fix completed without proper documentation, rental components or remaining economic life. Lenders only review property details once an accepted offer is in place – not when you’re simply considering making an offer or during the time you’re going back and forth as part of the negotiating process. They then review the contract, property disclosure statement (PDS) and anything else accordingly.
2. Even if a lender has approved you based on credit and income, if your scenario has since changed and they request further documentation (eg, you haven’t received enough overtime, you spent more on your credit cards, your employment/credit has changed or there was something you may have forgotten to disclose), they have the right to alter or cancel the approval. All lenders only do a full review of your credit and income once you have an accepted offer in place. They only view an application for rate hold or pre-approval purposes and verify once an accepted offer is in place with the right reserved to disregard the pre-approval, or even an approval at any time for the above reasons while doing their due diligence, right up until closing.
3. Who is in the best position to go into a purchase with no subjects? Borrowers who:
– Are overqualified for the purchase
– Can afford a higher payment if the original plan doesn’t work out with any of the above points
– Have their own cash (not a gift pending qualifications) far in excess of what was intended
– Have income that far surpasses what is required
As Accredited Mortgage Professionals, it’s our responsibility / fiduciary duty to be honest and transparent, and give you the power of choice with clarity on all the considerations to anticipate scenarios that may arise, so you can make the best choices for your family. It would be much easier to be a yes person and cross our fingers that none of this comes up, but it’s not how a professional should guide you, as you come to trust in our clarity, knowledge and experience. When you have this expertise coupled with the right real estate agent, they too will ensure you take the emotion out of the purchase, and protect you accordingly with subjects you’re comfortable with for your personal circumstances so your choice is calculated, clear and comfortable long term.
Thanks to my DLC colleague Angela Calla for this article.