Market Beware: Subject Free Offers

General Nicole Perri 8 Sep

When it comes to purchasing a home, most offers include conditions or subjects. These are requirements that need to be completed before the sale can be finalized and the property is transferred. Some of the most common subjects include:

  • Financing approval
  • Home inspection
  • Fire/home insurance protection
  • Strata document review if appliable

The purpose of these subjects is to protect the buyer from making a poor investment. It can ensure that there are no hidden surprises when it comes to insurance or the state of the property.

These conditions are written up in the purchase offer with a date of removal. This is agreed to by the seller before the sale is finalized. Assuming the subjects are lifted by the date of removal, the sale can go through. If the subjects are not lifted, the buyer can waive the offer and the purchase becomes void.

However recently, especially in heightened housing markets, there has been an emergence of subject-free (or condition-free) offers. These are purchase offers without any requirements of criteria. Essentially, what you see is what you get.

Listed below are the risks and outcomes of subject-free offers for buyers and sellers:

Pros of Subject-Free Offers

  • Buyers: The main benefit of a subject-free offer for a buyer is the ability to “beat the competition” in a heated market. However, it is not without risks.
  • Sellers: Typically, a subject-free offer will include a competitive price, willingness to work with the dates the seller prefers, and evidence that the buyer has already done as much research as possible. Due to a purchase of another home or a need to move immediately, subject-free offers expedite the deal.

Cons of Subject-Free Offers

For Sellers: When it comes to the individual selling the property, there is less risk with subject-free offers but not zero. While the benefit is there is no wait to accept the offer, they don’t know if financing will come through.

For Buyers: As a buyer submitting a subject-free offer, you are assuming a great deal of risk in several areas including financing, inspection, and insurance:

Financing

  • While buyers may feel that they have a pre-approval and so they don’t require a subject to financing, it is important to recognize that a pre-approval is not a guarantee of financing. The financing is subject to the lender approving the property and the sale; from the price and location to type of property or other variables the lender deems important. By submitting a subject-free offer without a financing guarantee, there is a risk that the deal can fall through. Further, in deals with a deposit, the buyer may lose their deposit if the offer falls through. This amount can vary in the thousands and is typically a percentage of the purchase price or down payment.

Inspection & Insurance

  • A buyer assumes massive risk when opting to skip the home inspection and home insurance protection subjects to have the offer accepted. They do not know what they are getting and whether or not the property is up to code for insurance.

Due Diligence

  • With subject-free offers, there is no opportunity for due diligence after the offer has been made. This requires the buyer to do all their research before their initial bid. Since it is firm and binding, a buyer who backs out will likely be met with severe legal ramifications. Submitting an offer without subjects is not due diligence and it is at the buyer’s behest.

 

Financing Around Subject-Free Offers

When submitting a subject-free offer, it is up to the buyer to do their due diligence before submitting. They will need to identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.

Contractual Obligations

Be mindful when it comes to purchasing offers versus purchase agreements. Purchase offers are written proposals to purchase, while purchase agreements are full contracts between buyer and seller.

The purchase offer acts as a letter of intent, setting the terms you propose to buy the home. If financing falls through, then the contract is breached and this is where the buyer may lose the deposit.

It is also important to be aware of a breach of contract if a seller chooses to take action. For example, if you submit a subject-free offer of $500,000 and cannot secure financing for that offer and the seller turns around and is only able to get a $400,000 deal with another buyer, they could potentially sue the initial buyer for the difference due to breach of contract.

Preparing a Subject-Free Offer

Despite the risks, there are some things you can do to mitigate potential issues, such as:

  • Get a Pre-Approval: Again, this is not a guarantee of financing when you make an offer.
  • Financing Review: Identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.
  • Do Your Due Diligence: Look into the property and determine if there have been major renovations or a history of damage. This could come in the form of a Property Disclosure Statement. While this statement cannot substitute a proper inspection, it can help identify potential issues or areas of concern. If possible, conduct an inspection before submitting your bid/offer.
  • Get Legal Advice: This can help you determine the potential risks and ramifications of the offer.
  • Title Review: Be sure to review the title of the property.
  • Insurance: Confirm that you can purchase insurance for the home. Although we may require an inspection, it can be substituted by a recent depreciation report.
  • Strata Documents (if applicable): Thoroughly review strata meeting minutes and any related documents to determine areas of concern.

Final Thoughts

There are ways to make subject-free offers safer, but it is still risky. Ultimately submitting an offer with subjects gives you the time and ability to gather information on the property.

If you are intent on submitting a subject-free offer, be sure to discuss it with your real estate agent. They can determine if a subject-free offer is necessary, or if a short closing window would work instead. A good realtor will keep you informed of potential interest and other bids during the process as well. Their goal should be to maximize your opportunity and minimize your risk. In addition, before making any offers, be sure to check with Nicole Perri to discuss your financing and mortgage options!

 

Written By Our Marketing Team.

Empowering Aging in Place with the CHIP Reverse Mortgage

General Nicole Perri 11 Aug

As we age, maintaining independence and staying in the home we love can be a challenge. We are faced with reduced mobility and the need for costly home modifications and personal care services. However, with the CHIP Reverse Mortgage by HomeEquity Bank, aging in place becomes more feasible and attainable. Here are three ways in which this unique financial solution can support you:

1. Enhance your home for accessibility and enjoyment.

The CHIP Reverse Mortgage enables you to make essential home improvements that improve accessibility, safety, and overall livability. For example, you can adjust electrical switches and outlets to a more comfortable height, eliminating the need for reaching overhead. You can also facilitate single-level living by relocating the laundry room from the basement to the main floor.

2. Afford the convenience of at-home care.

With funds from the CHIP Reverse Mortgage, you can access financial resources to help with various at-home care needs. For example, hiring a cleaning crew to maintain your house regularly or securing 24/7 in-home caregivers. As a result, the funds provide the means to ensure you receive the necessary assistance and support.

3. Support for transitioning into assisted living or long-term care.

If your spouse or a loved one needs to move into assisted living or long-term care, the CHIP Reverse Mortgage can alleviate the financial strain of the transition. The funds can be used to pay for accommodation and meals, known as co-payment fees, ensuring that your loved one receives the care they need.

Ease financial burdens with the CHIP Reverse Mortgage

In short, the CHIP Reverse Mortgage allows Canadians aged 55 + to unlock up to 55% of their home’s equity as tax-free cash. This enables you to revitalize your living space, afford at-home care services, or support your spouse’s transition to assisted living or long-term care. What’s more, there are no required monthly mortgage payments until you decide to move or sell your home.

Contact Nicole Perri today to discover how the CHIP Reverse Mortgage can empower your journey of aging in place.

What You Should Know About Mortgage Amortization

General Nicole Perri 6 Jul

Your mortgage amortization period is the number of years it will take you to pay off your mortgage. Firstly, it will affect how quickly you become mortgage-free. Secondly, it will affect how much interest you pay over the lifetime of your mortgage.  A longer lifetime equals more interest, whereas a shorter lifetime equals less interest but also bigger payments.

Let’s start by looking at the mortgage industry benchmark amortization period. The majority of lenders typically use a 25-year period when it comes to discussing mortgage products. It is also typically the basis for standard mortgage calculators.

While this is the standard, it is not the only option when it comes to your mortgage amortization. In fact, mortgage amortizations can be as short as 5-years and as long as 35-years!

Shorter Amortization Periods

Opting for a shorter amortization period will result in paying less interest overall during the life of your mortgage. Choosing this amortization schedule means you will also become mortgage-free faster and have access to your home equity sooner! However, if you choose to pay off your mortgage over a shorter time-frame, you will have higher payments per month. If your income is irregular, this is your first home, or you are at the maximum end of your monthly budget, you may not benefit from a shorter amortization. This will lead to having more cash flow tied up in your monthly mortgage payments.

Longer Amortization Periods

When it comes to choosing a longer amortization period, there are definitely still advantages. The first is that you have smaller monthly mortgage payments, which can make home ownership less daunting for first-time buyers. It can also free up additional monthly cash flow for other bills or endeavors. A longer amortization also has its advantages when it comes to buying a home. It can often get you into your dream home sooner, due to utilizing standard mortgage payments versus accelerated. In some cases, with your payments happening over a larger period of time, you may also qualify for a slightly higher value mortgage than a shorter amortization depending on your situation.

How I Can Help

Nicole Perri will be able to assist choosing the amortization that best suits your needs and ensure you have adequate cash flow. However, it is important to mention that you are not stuck with the amortization schedule you choose at the time you get your mortgage. You are able to shorten or lengthen your amortization, as well as consider making extra payments on your mortgage (if you set up pre-payment options), at a later date.

Ideally, you are re-evaluating your mortgage at renewal time every 3, 5 or 10 years depending on your mortgage product. During renewal is a great time to review your amortization and payment schedules. You can make changes if they are no longer working for you.

If you have any questions or are looking to get started on purchasing a home, reach out to Nicole Perri!

How to Pay Off Your Mortgage Faster

General Nicole Perri 9 Jun

 

When it comes to homeownership, many of us dream of the day we will be mortgage-free. While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage quicker!

1. Review Your Payment Schedule

Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster. You can move to an accelerated bi-weekly payment. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.

2. Increase Your Mortgage Payments*

This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privilege that allows you to increase your payment amount without penalty. This payment increase allowance can range from a 10% to 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without you feeling like you are having to change your spending habits.

3. Make Extra Payments*

For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or inheritance.

4. Negotiate a Better Rate

Depending on whether you have a variable or a fixed mortgage, you may want to consider looking into getting a better rate to reduce your overall mortgage payments and money to interest. This is ideally done when your mortgage term is up for renewal and with rates starting to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR moving to a new lender who is offering a lower rate (known as a switch and transfer).

5. Refinance to a Shorter Amortization Period

Lastly, consider the term of your mortgage. If your mortgage is up for renewal, this is a great time to look at refinancing to a shorter amortization. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help determine the new amortization schedule.

*These options are only available for some mortgage products, check your mortgage package. Also, reach out to me to ensure these options are available to you and avoid any potential penalties.

If you’re looking to pay your mortgage off quicker, don’t hesitate to reach out to Nicole Perri today! She can help review the above options and assist in choosing the most effective course of action for your situation.

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