The financing condition is a financing clause that may be included in a purchase agreement. Do you want to buy a house? Has the offer on your dream home already been accepted? In that case, due to the written requirement, a good purchase agreement will have to be drawn up. It is important to include resolutive conditions in the purchase contract of the home. That way you can get out of the sale without color cracks should a reason arise that is included in the purchase contract. The most important and most well-known resolutive condition is that about financing when someone is going to buy their own house: subject to financing. At Bliss we always advise to include a financing condition in the purchase agreement.
Subject to funding
A financing clause gives the buyer of a home the right to dissolve the purchase agreement if the person is unable to obtain a loan with a view to paying the agreed purchase price. Usually at the time of concluding the purchase agreement, it is uncertain for the buyer whether he can pay the purchase price. A request for a loan must first be actually submitted to a lender. It is not always certain in advance whether such a financing request will be granted. When the resolutive conditions with regard to the financing are included in the purchase deed, the buyer is entitled to dissolve the purchase if it turns out that the person cannot obtain a loan.
Why include a financing condition in the deed of sale?
Including a financing condition in the purchase agreement is not an unnecessary luxury. In fact, it is a necessity to prevent financial accidents. The standard fine in a deed of sale is 10 percent of the purchase price and uncertainties can always exist and arise during a financing process. There are not many people who can easily cough up such a fine amount. Nobody wants to pay such an amount unnecessarily.
After the signed deed of purchase has been received, the buyer has a statutory period of three days to consider. There must be two working days of this and this time is available to cancel the purchase without giving any reason. After this period, a buyer may only withdraw from the purchase if they can successfully invoke resolutive conditions.
If no financing reservation has been made and you have to forgo the purchase because you cannot get a mortgage, you will have to pay a hefty fine or the deposit. In most purchase agreements, a standard 10% of the purchase price is agreed to secure. We see in practice that people often take out a bank guarantee for this.
Have you calculated in advance how much mortgage you can get? Even if you know what you can borrow, it is wise to include a reservation as a resolutive condition. It is never 100 percent sure that you can get a mortgage. The risk of financing failing and leaving you with significant costs is important to reduce. The world does not stand still and there can always be certain reasons, which can make the decision of the lender quite disappointing. There are risks surrounding the collateral. For example, the valuation report may show that the market value of the home is not sufficient to fully finance the purchase price. In addition, you may have incurred a negative BKR registration, so that the chance of successful financing is often nil. That’s exactly why we check this in advance.
The lender’s acceptance policy is not a static entity. From time to time, the acceptance rules of providers become stricter and the risk assessment can be adjusted in the meantime. With a custom mortgage application, it is by no means certain whether the lender wants to finance. The decision and final judgment on the application always lies with the acceptor who assesses the application.
Correct statement subject to financing
In order to successfully invoke a reservation, it is essential that you have recorded the correct topics in the financing reservation. The term where the reservation applies is such a subject. Therefore, make sure that you state a date in the purchase agreement until when you need the time to successfully complete the financing. Often a reservation of 6 to 8 weeks is included after signing the deed of sale. The correct mortgage sum must also be stated in the resolutive conditions. It is also possible to make this more concrete. You can even choose to have a specific percentage of mortgage interest and the mortgage type described in the financing clause.
Delay questions: extend the interim period of reservation
If you have not yet completed the mortgage within the stipulated period, it is wise to contact the selling broker or the owner if the person is directly involved in the sale. Sometimes more time is simply needed due to delays during the process or throughput times at the lender. In such a situation, submitting a request to extend the term of the financing reservation is often a smart choice for all parties involved. If you are given more time, it is important that you get this in writing. That way you can always demonstrate this later if there is a need for it. If the seller agrees to an extension of the resolutive conditions, then also record the extension and the new date in writing. You naturally want to avoid any hassle about this subject afterwards.
Best efforts obligation when invoking a financing reservation
The buyer cannot simply dissolve the agreement by invoking the financing clause. The buyer has a best efforts obligation and will have to make an effort to obtain financing. According to case law, when invoking the financing clause, the buyer will have to submit at least two or three rejection statements to the seller. Often the clause also includes how many rejections are necessary for the buyer to be able to invoke this provision. It is the responsibility of the mortgage adviser to point out to the customer the date on which the option of dissolution of the purchase agreement on the basis of the included resolutive conditions expires. At Bliss, we carefully monitor the timelines, deadlines and progress of your mortgage application like a hawk.
Invoke the financing reservation
Are you not getting the financing? Would you like to invoke the financing condition? The purchase agreement often states that for a valid termination of the purchase agreement it is necessary to send a registered letter to the seller in order to be able to invoke the financing condition. It is often also necessary to submit proof of the above-mentioned best efforts obligation. The seller wants proof that an application has been submitted to one or sometimes more lenders and that it was subsequently rejected. If you are planning to buy a new home, it is important to prepare this well together with a mortgage advisor. During a process, there are several things that must be initiated. At Bliss, for example, we can assist you in applying for a valuation that is appropriate for the financing. Bought a house? Then send the purchase agreement directly to your advisor and make an appointment for mortgage advice, so that the application can be prepared properly and quickly. This speed creates scope to try another lender in the event of a rejection.
Include other resolutive conditions
The buyer and seller are free to include other resolutive conditions in their agreement, as long as these do not conflict with binding regulations in the law, with good morals or custom. In addition to being subject to financing, it is also possible to record other agreements about resolutive conditions. You may want to cancel the purchase if the sale of your old home does not go through. It is also wise to be able to dissolve the purchase if hidden defects come to light during the performance of the building inspection. When the repair costs of overdue maintenance exceed a certain amount, it is interesting to be able to renegotiate the agreed price or to abandon the purchase altogether. In that case, you include it in the purchase agreement subject to a building inspection. Would you like to take out a mortgage with the National Mortgage Guarantee (NHG)? Please include separate resolutive conditions for this.
In a number of municipalities it is required to have a residence permit. If you do not receive this permit, it is of course nice that you can cancel the purchase of the house. For this it is important to include a resolutive condition about this in the purchase contract. A good buyer’s agent can help you with this.
Other common resolutive conditions are those related to:
- Breach of performance
- Damage
- Building inspection
- Housing permit
- National Mortgage Guarantee
As long as there are no legal financing reservations, we always recommend including the correct resolutive conditions in the purchase agreement. However, at Bliss we are aware of current developments and the need to bid unreservedly in some places. Get good advice in advance, so that the risk of bidding without reservation of financing is covered as well as possible.
