The time has come – you’ve seen over 20 houses in the last couple of weeks and you have now found your dream home. You think to yourself, “this is the one; we cannot lose this deal.” 

With the market being so competitive, sometimes the difference between a firm and a conditional offer can be the reason why your offer gets accepted. There are pros and cons to both the offer types, and in this blog post, we will discuss what it means when you are looking to purchase a home with conditions vs going in firm.

What is a firm offer?

This means your offer is final, with no conditions. You are now legally obligated to follow through with the purchase of the home and cannot back out of the deal. This is usually in favour of the seller because they are happy to take the offer and not have to deal with potential repairs that come with a home inspection.

Pros of a going in firm:

  • The deal gets closed quicker. There is no inspection or other conditions that need to be met. 
  • There are no added fees, like getting a home inspection which usually cost between $200-$500 in Ontario. 
  • You may be able to purchase the home cheaper if other buyers have conditions. Many homeowners would instead take the offer that has no conditions attached to it. 
  • Overall your chances are higher of your offer getting accepted without conditions.

Cons of putting in a firm offer:

  • If the deal doesn’t close, and it’s the buyer’s fault, the seller gets to keep your deposit and you may be open to litigation for any other related costs by the failure to complete the transaction.
  • If there was any damage to the house that you were unaware of, you are responsible financially for those issues. 

Considering all this, if you have your finances in order and have visited the property multiple times and think there is no need for a home inspection, then putting in a firm offer may be the option for you… but before you do, we should consider one more thing… the risks.

What is the risk of going in firm?

You have a pre-approval so you should be good right?

Pre-approvals are an important step but do not guarantee that you have the financing you need for a particular property. There is always the fine print from any bank/lender/broker that says that the pre-approval does not mean you do not need a financing condition.

But if you are pre-approved for the dollar amount you need, what could go wrong?

The issue is the property is a major piece of the puzzle when getting approved for a mortgage. Let’s look at these 3 areas; Covenant, Condition and Community.

The Covenant of the property is important as this will be the security that the lender has if you are unable to pay. The covenant tells us how the property is going to be owned. It may be a condo where the status of the condo corporation is under question as to the funds they have or will need to properly maintain the property. There may be other agreements and obligations attached to the property like a shared well or restricted access to enter the property (laneways, etc). Lenders may decline to lend on these properties…

Next is Condition, you may say that you have been through the property and it looks fine, but there are certain things in a home that would jeopardize financing that you can not see.. it is behind the walls, things like asbestos products, UFFI insulation, knob & tube or aluminum wiring just to name a few. Lenders track and look into these items and may decline to lend on these properties.

Then there is the Community, the location can affect your pre-approval. Properties that are adjacent to industrial, commercial lands can be an issue.  This includes properties that may be in or even just too close to where an environmental issue has happened (not just recently but years ago). Some lenders even have concerns with some properties if they are too remote, have well and septic, or may have other stigmas attached (like a crime/death). 

Lenders may decline to lend on these properties. 

As you can see, even the best-qualified buyers can be taking a risk. Our point here is to consider all the risks before making this decision.

Communication with your agent and mortgage professional. With years of experience behind them, they will guide you through the process to ensure you are making the best decision for your future. 

Now let’s take a look at your other option – the conditional offer. 

What is a conditional offer? 

A conditional offer is when there are conditions attached to the offer. These conditions are usually based on financing or a home inspection. By having a home inspection in place, you protect yourself if there are any unforeseen issues with the house. 

Technology today makes it relatively easy for a home inspector to see behind walls and get an accurate depiction of the integrity of the home. 

Keep in mind; no house is perfect! There will always be a few issues here and there, but after gaining insights into your future home, you can make an educated decision on whether or not to move forward with the purchase. 

It is good to keep in mind that the offer can only be completed once all conditions have been met. 

In a competitive housing market like we are in today, putting in an offer over asking, but with conditions can cause you to lose your dream home. 

Once again, communication with your agent and mortgage professional is the key.

You can also use our mortgage calculator to calculate your mortgage payments for free! This will help you get a better understanding of what you can afford. We also offer an easy pre-approval process to get you ready to put an offer on your dream home!

At the Mortgage Station, our job is to be there for you along the way and be as transparent as possible with all potential risks and situations involved, so you can decide what is best for you.

Contact us today!