I wrote an e-mail out to a client today about going subject free, and figured I should turn it into a blog post. With the amount of people wanting to go subject free these days, I feel the public should be aware of how it may affect their financing.
“Going subject free is a completely different ball game. While yes, you are pre-approved, but what about the property?
To put things in perspective, I had clients recently go subject free on a property in the lower mainland. Once the offer was accepted and we got an appraisal, we found out that the property was on a floodplain (a property on a floodplain means that it could flood under heavy rain or if the nearby river gets extremely high). We had a lender lined up to fund the mortgage, but once the lender found out it was a floodplain property, they no longer wanted to fund the mortgage. We had to find another lender in a short time frame that didn’t have a problem with the property being a flood plain. This put tons of extra stress on the clients, as they couldn’t back out of the contract (without losing their deposit, or worse) due to there being no subjects on their offer. In the end we got it done, but due to it being subject free there was no protection for the buyer, so the stress levels were fairly high.
Another story from a different broker… His clients went subject free on a condo in Vancouver. Once the offer was accepted and they got an inspection, they found out that the building was a leaky condo. There are 0 lenders that will lend on a property that is a leaky condo (unless the work has been 100% re-mediated, and in this case it wasn’t). In this particular case, the clients ended up losing their deposit because they couldn’t find a lender (the deposit was $20,000). When going subject free on a condo or a townhouse, we really need to do our due diligence and make sure the property is 100% OK. We have to dig deep through the strata minutes and Form B to make sure there is nothing wrong with the complex. If there is the slightest concern with the property, we may have a hard time getting financing.
I don’t recommend going subject free due to the potential risk of losing your deposit (or worse) if we can’t find a lender because of the property.
That being said, it’s completely up to you if you want to go subject free. Yes, in order to secure a place in the current market most people are being forced to go subject free, but it does come with substantial risk. If you are certain the only way to get a specific property is by going subject free, feel free to send me over every document related to the property and I’ll do my best to comb through the documents for any potential issues. Please keep in mind however that there is never 100% certainty that the property will be approved. The lender still has to review every document and make sure that the property meets their lending guidelines.”
I’m sure you’re wondering, what should we look for with the property that will make it tough to get financing? I’ve compiled a list below to give you an idea, however the complete list is significantly longer.
Property Red Flags:
Commercial-zoned properties – C1 thru C8 zonings are ineligible with nearly all lenders (CD-1 is not commercial; many high-density areas in greater Vancouver will have this zoning)
Age-restricted properties greater than 19+ – 19+ is a case by case exception.
Condos with ongoing assessments or incomplete repairs
Live/work or heritage zoning
Log or floating homes
Post-tension cable or condo conversions
Resort areas – Sun Peaks, Big White, Apex, Hemlock, Kicking Horse, etc.
Past grow-ops… even though the property has been remediated
Purchases closing outside of 120 days
PDS references to vermiculite insulation, asbestos, water leaks, septic system failures, non-potable water, large special assessments within the past five years etc.
Thanks for reading.