How to Go No Subject to Financing
As much as I keep telling clients to put a subject to financing, many of you don’t listen! So here’s a blog post where I share how you can go NO SUBJECT TO FINANCING.
OK! So I’ve done a video before on "Should I Go No Subject? The answer is NO but I get how the market is crazy hot right now and if you put a subject to financing, you’re just asking the seller not to accept your offer. So, many buyers are forced to go no subject in order to have a chance to win the bid and purchase their dream home.
Now, don’t get me wrong...I’m still all for putting in a subject to finance clause in there but if you HAVE TO put in a no subject, we REALLY need to make sure we do our best to prepare so that we won’t hit any issues in the mortgage application.
Here are things we need to do:
Pre-approval - Obviously prior to looking at homes, you’ll most likely have gone through a pre-approval. When you are ready to make an offer, we need to make sure that there are no changes to your work. We need to ensure there are no huge changes like number of hours, job change, leave of absence...and so on. We need to ensure the information you provided at the pre-approval is the same as when you are applying for the official mortgage application. We also need to re-confirm your down payment. Where is it coming from? Are there any large deposits that we need an explanation for? And lastly, your debt situation...did you buy a new car with financing? Or are there any issues with your credit that may result in the bank lowering the approval amount? This would be the first time….very common regardless if you are going no subject.
Here are things we really need to confirm:
1. This pertains to buying strata properties like condos and townhouses. We need to review the strata minutes and the latest AGM. Were there any special levies approved? Any big on-going jobs at the building like building envelope, re-piping, changing the roof, a huge flood…? The minutes will show that and it’s a red flag if these items show up on the minutes.
2. Inspection - Do an inspection on the place prior to putting in an offer. Make sure you know exactly what you’re buying and what issues may arise in the future. This is usually not part of the financing but if the condition is really bad and the pictures on the appraisal shows mold and other building defects, lenders won’t like it and may not want to secure it.
3. Get an appraisal upfront! We need to ensure that what you are buying is consistent with the market value. With people bidding so aggressively, there have been many situations where the purchase price on the contract is much higher than the appraisal value. And guess what, banks take the LOWER of the two values. So for example, if you put an offer at $1,000,000 and you’re approved for 80% or $800,000...but the appraisal comes back at $900,000, you’ll only be approved for $720,000. That’s $80k less! The appraisal report will also have photos as well. We need to ensure the photos will communicate with the lender that it is a good and livable place.
4. Lastly, if you want to go no subject and you’ve already done everything we mentioned, ensure you have cash on hand. Cash is important and pretty much your cushion if, for whatever reason, you are approved for less than what you expected. Just like my previous example, if you decided not to do an appraisal upfront, well, that’s OK. You just need to prepare yourself, worst case scenario, that you have extra cash to cover any short falls.
Remember, this will still bring you up to 99% of approval. We can’t decide for the underwriter whether or not they want to approve the mortgage. Just make sure you know what you’re getting yourself into and do what’s required to manage and reduce your risk.
And there you go! We just explained how you can go NO SUBJECT TO FINANCING. If you have further questions or would like to chat, please leave a comment down below or feel free to reach out to us personally!