Most people looking for a new home in the province of Ontario do not have the kind of money it takes to buy a house or a condo. They will need a bank to finance their purchase and this can lead to potential problems. What if your mortgage is denied? How can you get your deposit back if your mortgage application is denied?
There is a solution to this problem, but you will need to be very careful what papers you sign. Even if your heart is set on a certain property, never rush. Not when hundreds of thousands of dollars are at stake.
You need to be smart and prepare for every contingency, starting from the moment you make your offer if you want to be able to get your deposit back.
What sort of offer should I make?
There are two types of offers you can make, but before you take any action take a moment to think if you really want to buy that house. Backing out of a deal for no reason other than I’ve changed my mind can cause you to lose the deposit. Keep in mind that an offer is a binding contract.
Here are the two types of offers most commonly used by realtors in Ontario.
Firm Offer
This is sometimes referred to as a ‘subject-free’ offer. This is the type of offer buyers will use when they are very determined to get their hands on a hot property. Sellers obviously prefer this sort of offer with no conditions attached and the transaction goes faster. However, by making a firm offer you are legally obligated to buy the house. If you still have your mortgage to be approved, this type of offer is risky. The seller is under no obligation to give you your deposit back should the lending institution deny your mortgage. Bear in mind that sometimes even pre-approved buyers can see their mortgage denied.
Conditional offer
This type of offer typically includes various conditions that need to be met before the transaction can go through. For instance, if you need to sell your old house first, that should be included as a condition. Or, you might make the offer conditional on the completion of the house inspection.
How to get your deposit back if your mortgage is denied
To make sure your money is safe, use a conditional offer when negotiating with the seller. Standard real estate contracts in Ontario usually include various conditions or contingencies.
The financing contingency
Real estate agents often encounter this type of problem, which is why financing contingencies are included in the contract. The condition should state in very clear terms that, should the bank turn down your mortgage application for whatever reason, you, the buyer, get your deposit back.
Tip: Some real estate deals in Ontario offer a ‘buyer’s remorse period’. Usually this is a 10-day period during which you are allowed to change your mind and back out of the deal and still get your deposit back. The not-so- good part is that not all real estate transactions offer you this opportunity. Talk to your real estate agent about the remorse period before signing any deal.