Updated June 26, 2019 by Mike Stewart PREC
Subject to Financing in Real Estate Offers
In Episode 13 of the First Time Home Buyers Guide for Vancouver, we discussed Subject Clauses in general.
Today we’re going to discuss the Subject to Financing Clause in detail and how it relates to and affects a real estate offer. Chad Watts of the Mortgage Group was kind enough to come and talk to us about subject to financing.
What does Subject to Financing Mean?
Subject to financing basically means that a Buyer, for up to 7 days after an offer is accepted, can walk away from or kill the accepted offer if the Buyer cannot get satisfactory financing.
Keep in mind this is a subjective criteria based on the Buyers opinion of the financing as to whether it is satisfactory or not.
Typically the “Financing” referred to above is the mortgage a purchaser wants to get in order to buy the property in question.
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Why Do We Use a Subject to Financing?
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Like I mentioned in Episode 13, when it comes to writing offers on Real Estate in Vancouver, SAFETY COMES FIRST!
We use the Subject to Financing Clause to protect the Buyer.
This clause gives the Buyer has sufficient time to get confirmation IN WRITING that the financing or mortgage for the property is confirmed.
Subject to Financing allows the Lender an opportunity to appraise the property to ensure the property is worth what the accepted offer says it is and to confirm the Borrower/Buyer can afford to pay the mortgage. Once the Lender has done this, they can give the Buyer/Borrower confirmation in writing that the financing or mortgage is approved.
Check out this great explanation of how subject to financing works.
How to Identify the Subject to Financing in the Offer
To identify the subject clauses in an offer look for clauses that start with “Subject to…”. The Subject to Financing clauses can be as simple as:
“Subject to the Buyer receiving and approving suitable financing on or before _(date)_ . This subject is for the sole purpose of the Buyer.
The subject to financing could also include details about the financing including payment amounts, amortization, and mortgage term.
Contract of Purchase for Vancouver BC Courtesy of Mike Stewart Realtor
How Long is the Subject Period after the Accepted Offer?
Its usually 7 days. This is the time it normally takes a bank or other lender to appraise the property to ensure it is worth what the accepted offer says its worth as well as to satisfy the bank/lender of the Buyer/Borrowers ability to pay the mortgage.
This time can be shortened or lengthened in a negotiation based on the Buyers and Sellers needs, but its advisable for a Buyer to first consult with their Lender before agreeing to a shortened Subject Removal period.
Stay tuned for Episode 15 of the First Time Home Buyers Guide for Vancouver when when we will discuss Subject to Inspection! (Coming Soon!)
Never Sold a Home Before? Need Advice? Check out thee informative Videos on How to Sell a Home in Vancouver!
Thinking of Buying a Presale Condo? Have a look at these great videos on How to Buy a Pre-Construction Condo in Vancouver!
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