Hi, everyone. How are you? It's Leah Coss with The Mortgage Centre, and I wanted to talk about why you should not ever, ever [laughs] make a subject free offer. At the very least, you need subject to financing on there. Now, why is that? Well, going back to my famous five hand of points of what banks look for, property is one of them. So you could be fully approved. Say, for example, you go and you try to buy a home, and for whatever reason, you opt not to, or the sellers decide that they don't want to sell it anymore.
You were fully approved, though. The banks said, "Yes, we will fund your deal, no problem." And something falls through. But you assume that because you were able to buy that home that you're able to buy any home. And so the next time you go in to make an offer on a place, you decide to be competitive and you say, "No subjects. None." Well, obviously, the seller's going to want to take you.
But, here's what can happen. The banks are not just loaning you the money. They're loaning you the money based on the collateral that they get in the event that you default on the loan. That's the property. So, for whatever reason they don't like the property, they will not fund your deal.
Now, you might be saying, "Ah, yeah. But Leah, you talk about previous grow ops. You talk about oil pans in the backyards of old heritage homes. Those are things that I would know. I'd see it on the MLS and see if there's any issues."
Well, yes, that's true. Those are properties that many banks will not finance. However, there are other times where you may not suspect that there's an issue but there is. Strata units are big time problems for this. And the reason for it is if, say, for example, the contingency fund, so when you pay your strata fees every month, that gets put away into a pot. That way, if the roof needs to be redone, then at least we've got a huge amount of savings that we can have contribute towards those repairs.
If the contingency fund is very low or was just tapped into, a bank can say no. They'll be like, "No. What if something goes wrong? There's no contingency fund." Which now means you are going to have like a $50, 000 bill coming your way that you did not expect. And the banks figure that you won't be able to afford that $50, 000 bill. Ipso facto, you go into foreclosure. That becomes a high risk deal.
Other times, strata units will have the roof being redone and you want to buy it mid repair. It doesn't matter if that repair is 99 percent done for the whole strata complex and the part that isn't complete is like an acre away from you on the other side of the strata property. It doesn't matter.
Until that roof is 100 percent repaired, the banks won't lend, because what if, all of a sudden, money runs out, the contractors don't finish the job? What happens then? Well, now the value of the strata units as a whole go down, or more money has to be put towards the fixing of it. All these different things start rolling through the lenders' minds, and now they don't want to fund your deal.
So, those are just a couple of examples of things you wouldn't think of that would affect whether your deal would go through or not, just based on the lender's preference to properties and certain requirements that they need those properties to meet.
So, if you are thinking of going in subject free on a property, at the very least, give me a call and let me see all of that property's paperwork. Because, until I see that, it's just not going to be a smart option for you to go in subject free.
So, if you have any questions about this or the property that you're trying to buy, or if you are in a competitive situation and you want to add some competitive edge to your offer without going in subject free of financing, give me a call. I can give you some ideas or put in contact with a realtor who can give you some awesome ideas as well.
So, Leah Coss with the Mortgage Centre. Hopefully I'll be talking to you soon, and good luck with those offers.