When you purchase a home, whether it is new or resale, the Agreement of Purchase and Sale should always be made conditional on mortgage financing.
Some clients obtain a mortgage pre-approval from a financial institution and are under the mistaken assumption that this approval is sufficient to wait or remove their financing condition in the Agreement of Purchase and Sale.
A mortgage pre-approval is simply a certificate issued by a financial institution stating that you qualify for a mortgage at a certain amount. This certificate is based upon the financial information supplied by yourself as the Purchaser. The financial institution has not verified any of the information you have suppled and until they do so, you are not guaranteed to have a mortgage nor should you waive the condition on financing.
You should ask your financial institution for a firm (no conditional) mortgage commitment guaranteeing the mortgage amount you requested and it should set out all of the terms of the mortgage such as your interest rate, term of mortgage, amortization etc. Per some of our previous editorials, you should also try and get them to guarantee your interest rate to the closing date.
Typical conditions that may be inserted in your mortgage commitment, which you should always try to get removed, are as follows:
- Income verification; or
- Appraisal; or
- CMHC approval.
You should try and give your financial institution all of the information necessary to satisfy the above conditions and ensure they complete their appraisal or CMHC approval prior to the removal of your mortgage condition in your Agreement of Purchase and Sale. You may otherwise end up not being able to close the purchase based upon some of these conditions not being met and you may end up getting sued in the process
Note: All information herein is not intended to be specific legal advice and is given for information purposes only. You should always consult with your own lawyer prior to signing any Agreement of Purchase and Sale.