A subject-to-financing clause protects your deposit by making your real estate offer strictly conditional on securing a firm mortgage approval, usually within 5 to 10 business days. If your lender declines the loan, you can legally cancel the contract and get your deposit fully returned.
When searching for a house in the competitive Halifax real estate market, it can be extremely tempting to submit an offer with no conditions to win a bidding war. However, placing a firm offer without having fully guaranteed funds is one of the most dangerous financial risks a buyer can take in Nova Scotia. 🏠
A subject-to-financing condition is your absolute best safety net. Even if you have a pre-approval from your bank, the lender still needs to officially appraise the specific property you are buying before they release the money. If the house appraises lower than your offer, the bank might say no. Writing this clause correctly is essential, and leaning on a trusted real estate law firm ensures you are never forced to buy a home you cannot actually afford.
Step-by-Step Process for Including a Financing Condition
Whether you are buying a duplex in Dartmouth or a newly built home in Bedford, the standard Agreement of Purchase and Sale provided by the Nova Scotia Real Estate Commission has dedicated sections for conditions. Your agent and lawyer will guide you through executing this properly. 📝
Step 1: Establishing Your Timeline
When drafting your offer, you must specify exactly how many days you need to secure your mortgage. In Halifax, most buyers request a period of 5 to 10 business days. This gives your mortgage broker enough time to send the accepted offer to the lender, order a property appraisal if required, and get the final underwriter approval.
Step 2: Drafting the Clause Properly
The clause must state that the offer is strictly conditional upon the buyer arranging satisfactory financing at their own sole discretion. It will include a precise deadline (e.g., “on or before 5:00 PM on May 20th”). Standard Nova Scotia contracts already contain legally tested language for this, so you do not need to invent the wording yourself. 💵
Step 3: Communicating with Your Lender
As soon as the seller accepts your offer, the clock immediately starts ticking. You must send the fully signed contract and the property’s MLS listing directly to your lender or broker. You must actively work to fulfill this condition in good faith, providing any tax documents or pay stubs the bank demands.
Step 4: Providing Notice of Fulfillment (Waiving the Condition)
Once your lender gives you the formal, written “clear to close,” you must instruct your agent to send a formal written notice to the seller. This document officially waives the financing condition. At this very moment, your offer becomes a “firm” deal, and your initial deposit becomes legally locked in. 🤝
How Much Does Securing Financing Cost?
While writing the clause is simply part of the offer, the actual process of getting the final mortgage approval may involve upfront fees. 💰
| Service / Expense Type | Estimated Cost (CAD) |
|---|---|
| Good Faith Deposit (Protected by clause) | 1% – 5% of purchase price |
| Lender Property Appraisal Fee | $350 – $550 (Sometimes covered by lender) |
| Mortgage Broker Fee | Generally $0 (Paid by the bank) |
| Real Estate Lawyer Fees | $1,000 – $2,500+ (Paid at closing) |
How Long Does the Process Take?
Time is of the essence when dealing with real estate contracts. Your financing condition typically only lasts for 5 to 10 business days after the offer is initially accepted by the seller. ⏳
If your bank is severely delayed and you cannot secure an approval by the deadline, your lawyer or agent must request a formal written extension from the seller before the time expires. If the seller refuses to grant an extension, the deal will completely collapse, but your deposit will be safely returned to you.
Frequently Asked Questions (FAQ)
Can I use the financing condition just to change my mind?
No. In Nova Scotia, you are legally required to act in “good faith.” This means you must genuinely try to obtain a mortgage. You cannot simply use the financing clause as a free pass to cancel the contract because you found a different house you like better.
What happens to my deposit if the bank says no?
If you genuinely cannot secure financing and you provide formal written notice to the seller before your specific condition deadline expires, the contract becomes null and void. Your entire deposit will be returned to you in full without any deductions.
Do I still need this clause if I have a pre-approval?
Yes, absolutely. A pre-approval simply evaluates your personal income and credit score. A final approval evaluates the specific physical house you are buying. If the house requires extreme repairs or appraises lower than the price you offered, the lender can still easily deny the loan.
Should my lawyer review the offer before I sign it?
It is always highly recommended to have a local law firm review the Agreement of Purchase and Sale before you sign, especially if you are including unique conditions, purchasing rural property with a well/septic system, or buying an older historic home in Halifax.
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