Firm Offer ‐ Risk Assessment I have underwritten your mortgage application, and you meet both the debt service and credit guidelines. If you decide to remove your condition of financing from your offer to purchase, you will have the following risks to consider:
If the property's appraised value comes in lower than the purchase price, you must increase your down payment to cover the difference. The fewer funds you have available as a buffer, the greater the risk that you won't be able to make up the difference.
Appraisers rely heavily on recent comparable sales in the immediate area when estimating a property's value. The fewer comparable properties there are, the more subjective the appraiser's job becomes, especially if your subject property is remote, or unique.
If you are making a substantial down payment on your property, then the appraisal condition presents only the limited risk that you may be required to pay for high‐ratio loan insurance if the value is adjusted downwards.
If you are only making a small down payment with limited additional resources, the risk in waiving your financing condition before the lender has signed off on the appraisal increases as room for adjustment is smaller.
There is also the risk that an appraiser flags a specific issue with the property, such as the presence of knob & tube wiring, lnsulbrick, disturbed asbestos, UFFI or other materials the lender deems unacceptable. In such cases, the lender may still be willing to proceed on the condition that a portion of the mortgage funds be held back until the borrower provides confirmation that issues have been addressed. Once the necessary repairs are made, the lender then releases the held back funds. While waiving your financing condition before having a fully qualified commitment from your lender is a fairly common practice at the time being for the GTA, you are taking a significant risk when you do this. The bottom line is; the less financial flexibility you have, the more important the financing condition becomes.
Lindsay Doke 416 464 6423
MountainView Mortgage Brokers
