You’re buying a home and the excitement, mixed with some nerves, starts to creep in a few weeks before closing. Even if this isn’t your first home, there are always issues that may arise in your real estate deal. The best course of action is to be aware of potential problems and have a plan if they come to light.
It is a worst-case scenario if your real estate deal does not close on the agreed-upon date. The buyer failing to secure financing is one reason that a real estate deal could go south.
First, let’s talk about the contract that you and the seller have.
Understanding the Agreement of Purchase and Sale.
The Agreement of Purchase and Sale is a legally binding document and terminating the deal after this agreement is signed will come with consequences.
As the buyer, you will pay the seller a deposit because you plan to honour the agreement. Once you sign the contract, it is understood that you will not get that deposit back. You also risk being sued by the seller for any damages suffered by the seller, such as the lost opportunity to sell to someone else.
Your lender will conduct an appraisal.
Before your property closes on the agreed-upon date, your lender will conduct an appraisal shortly before closing. Your lender is ensuring that the property that you are purchasing is close to market value.
If your lender is not satisfied with the appraisal and the house appraises lower than the purchase price, your lender could refuse to provide you with a mortgage.
As the buyer, what are my options?
If your lender isn’t satisfied with the appraisal and refuses to provide you with a mortgage, here are your options:
- Come up with hundreds of thousands of dollars yourself.
- Secures secondary financing from a different lender.
- The seller provides a Vendor Take-Back Mortgage (VTB). A VTB is when the seller lends the buyer the money to purchase the home. This only works if the seller outright owns the home.
- The seller reduces the price of the home so that the deal can still close.
We have seen cases like this in bidding wars or a hot market where a house is purchased for well above average. The lender isn’t satisfied with the overpayment and the deal can fail to close.
I thought a pre-approval guaranteed a mortgage.
Your pre-approval is the first step when searching for a home.
Unfortunately, a pre-approval doesn’t guarantee that your lender will provide you with the funds upon closing. Your financial situation can change from your pre-approval to closing and the appraisal of the house must satisfy your lender.
If your lender is not going to provide with you a mortgage you do have options. Working with a trusted team of real estate professionals will make all the difference if your deal goes awry.
This article is intended as an informative piece about the subject. It should not be taken as legal advice. We recommend you connect with a real estate lawyer about your specific legal issue.
McMurter & Associates in Whitby has been providing estate planning services throughout the Durham Region for more than 30 years. We have the experience needed to provide you with expert advice for any of your real estate and estate planning needs.
To meet with a member of our firm, send us an email or call us at 1-1-800-756-7138 or 289-278-0934 to schedule a consultation.