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What To Consider Before A Firm Subject-Free Cash Offers

 

Before you consider putting in a firm subject-free cash offer,

you need to understand the risks involved and understand that usually this can backfire because of something being wrong with the property instead of your paperwork.

 
 
 

Subject-free offers are most risky when you have under a 20% down payment and/or if you are moving into a strata property. This is because the mandatory mortgage insurers you need to work with when putting under 20% can be very picky at sometimes the most minute of details and these are easy to miss when combing through thousands of strata document points. In the worst case scenario, you’ll need to work with an alternative lender who usually needs at least 20% down payment and doesn’t have a mortgage insurer to adhere to.

Firstly, ensure all of your documents below are submitted and approved:

Important Document Confirmation:

  • Last two years of T1 Generals (if self employed)

  • Articles of Incorporation (if applicable)

  • Last two years of Notice of Assessments

  • Letter of Employment if you are an employee

  • Last two years of T4 Generals if you are an employee

  • Recent Pay Stubs from within 30 Days

  • Satisfactory down payment approval from the right sources

  • Satisfactory credit score report showing adequate score and credit story

  • One piece of government issued identification

If under 20% down, contact the three mortgage insurers to see if the property has been flagged:

Most Common Building Red Flags:

Most importantly, here is a checklist I have developed for you to do due diligence before going subject free.

  • Envelope issues - have these ever occurred? If they have and they're not 100% complete, we're in trouble.

  • Is the property age-restricted or is it a co-op? Is it a self-managed strata? All of these have risks in being turned down.

  • Has the building renewed its insurance policy?

  • Is the Remaining Economic Life more than 15 years? (Take 65 years - years it has been around for a rough estimate)

  • Is the contingency reserve fund over $100,000? If it's 20+ years old...this might be a red flag. For a new building this is less bad.

  • Other Facts About Home That Cause Lender Rejection...

  • Make sure no adjacent buildings (connected via parking lot) have damage or structural issues

  • Live-work units

  • Row-homes (attached non-strata properties)

  • Properties smaller than 450 sq ft

  • Properties on lease land, Government, First Nations, or Private.

  • A remediated grow-op

  • Remediated drug lab

  • Lease land

  • First nations lease land

  • Special Assessments (pending or otherwise)

  • Any reference to water leaks or “Envelope issues” in strata minutes

  • A “fixer upper” home with poor conditions

  • Contains Vermiculite insulation

  • Contains any kind of knob-and-tube or aluminum wiring

  • Contains asbestos (cancerous construction material)

  • Is on land with a commercial zoning component

  • Livestock is present

  • Active farming of any kind (check MLS notes)

  • Any commercial activity on property

Ways to go “kind of” subject free with an “out”

If your realtor still thinks your offer will be competitive, you can fight to have the condition of either of the below so that you still have an “out” in case financing falls through. You can go in with no subject to financing but the below are things you can report as not satisfactory and thus still back out.

  • Subject to a status certificate review for strata properties (5 days after receiving it)

  • Subject to a satisfactory appraisal (it’s easy to back out and blame it on the appraisal)

  • Subject to a satisfactory review of strata properties

Exit Strategies

If you go subject free and one or more of the above issues occurs, there are still ways to get approved by certain banks and even some alternative lenders. You must have between 20% to 35% down payment for this to be possible

See what you qualify for or contact Paul to get your pre-approval.

Paul Davidescu (www.levelupmortgages.com)

  • Level Up Mortgages

  • 604-809-3188

  • paul(at)levelupmortgages.com

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Mortgage Tricks, Latest, First Time HomebuyersPaul Davidescu2021