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You’re thinking about buying your first home and then when you start delving into the subject you come across all kinds of terms that are important, but you don’t know exactly what it actually means.
One such term is buy subject to financing and structural inspection. An important part of the buying process. And this rule is there specifically to protect you, the buyer.
How that works we explain to you clearly below.
What is reservation of funding?
The reservation of financing falls under the resolutive conditions you agree with the selling party. These are reasons under which you can possibly abandon the purchase of a house.
Basically, you just agree that you may still find out if you can get a mortgage for the home on which you made the winning bid.
How long does the caveat apply?
In the purchase contract, you and the selling party agree on the period within which the resolutive conditions apply. A good rule of thumb is to assume six to eight weeks.
Within this period, almost any mortgage lender can indicate whether they want to give you a mortgage.
Do you expect that it may take longer in your situation, for example because you work as an entrepreneur? Then you can also agree on a longer period, but shorter is of course also possible.
This resolutive condition protects you as a buyer from a penalty (usually 10% of the purchase price) if financing fails unexpectedly, often requiring one or two rejections from banks to dissolve.
Here are the key points about this term:
- Buyer protection: It is a crucial part of the preliminary sales contract that prevents you from being stuck with a purchase you cannot afford.
- Termination clause: If the financing is not completed by the deadline, the buyer can terminate the purchase agreement free of charge.
- Effort Obligation: The buyer must demonstrate that a mortgage was actively sought, for example, by submitting official rejection letters from lenders.
- Deadline: The period for arranging funding is usually six to eight weeks.
What is reservation of building inspection?
Subject to structural inspection means that the buyer may rescind the sale if a technical report shows that the house has serious defects.
The purchase contract often includes a “construction amount (e.g., €10,000) for immediate repair costs. If the repair costs are higher, the purchase may be rescinded free of charge.
Its purpose is to prevent the buyer from being surprised by high, unexpected maintenance costs, especially in older homes.
Buyer protection
Thus, both conditions provide security and prevent you from being stuck with a home that you cannot afford or that is structurally unsound causing you to incur many additional costs.
This is why it is important to indicate already when you make the first offer on your dream home which resolutive conditions will be included in the sale.
So you usually make your offer subject to financing and subject to an architectural inspection. In the tight housing market, the resolutive conditions have become part of the negotiations with the seller.
If your offer is accepted, you can include the caveats in the purchase contract.
But to have a better chance of getting a home, there are buyers who also drop caveats such as the caveat on the structural inspection or the caveat on selling their own home.
It makes sense that the seller likes it better when there are fewer conditions, because with fewer conditions he has quicker assurance whether the sale will go through. But this is not always wise.
So think carefully before bidding and, when possible, consult with a good advisor!
Mortgage2Go
Have you found your first dream home by now or are you busy looking?
And before bidding, would you like more information about the mortgage, good advice and immediate certainty about what you can borrow as a minimum?
How nice it is then when you already have the financing pretty much in place!
This is where Mortgage2Go comes in:
With a pre-checked mortgage, your financing is almost fully secured, and you can be confident that you’ll be able to afford your dream home.
Within two business days of your accepted offer, your financing is then complete and finally approved!
Start an application quickly and see if you qualify. You can also make an appointment directly.
