A financing condition allows you to cancel the purchase if you cannot get the mortgage you need. This prevents you from still having to buy the home after your application is rejected or potentially having to pay a contractual penalty.
This protection does not apply automatically. Your offer and purchase agreement must correctly state details including the required mortgage amount and an end date. You must also be able to show that you made a serious effort to arrange financing and submitted the correct supporting documents on time.
What does a financing condition protect you against?
A financing condition is a cancellation clause. You agree with the seller that you may cancel the purchase under certain conditions if you cannot arrange the mortgage.
It is not a general option to change your mind later. You can only rely on it if your situation is covered by the agreed wording. That is why you should include the condition in your offer, together with other conditions in your offer. Then check that it appears fully and unchanged in the written purchase agreement.
A calculation of your maximum mortgage, a mortgage statement or a positive initial assessment is not yet a final commitment. After the purchase is agreed, the lender will assess matters including your income, financial obligations, documents and the value of the home.
What financing amount should you include in your offer?
The financing condition states the mortgage amount for which you need financing. This amount must match what you actually need to borrow.
Have this calculated before deciding how much you can responsibly offer. Do not only consider the purchase price, but also your own funds and the purchase costs and own funds you need. If you enter a mortgage amount that is too low, a lender may be willing to lend that lower amount while you are still short of money. It is then uncertain whether you can rely on the financing condition.
The valuation also matters. As a general rule, the maximum mortgage cannot exceed 100% of the home’s market value. If you offer €450,000 and the home is valued at €425,000, you will generally have to pay the €25,000 difference yourself. You must also cover any purchase costs that cannot be included in the mortgage.
A financing condition can cover this valuation risk, but only if the amount and the other conditions are set correctly. A lower valuation is not in itself a reason to cancel the purchase. The condition applies if the lower valuation means that you cannot get the agreed mortgage and you meet the requirements in the purchase agreement. Before making an offer, discuss the following with your mortgage adviser:
- how much you can borrow based on your income;
- how much of your own money is available;
- the mortgage amount you actually need;
- what happens if the valuation is lower than your offer.
How long should the financing condition apply?
There is no standard period set by law. The end date is part of your negotiations with the seller. For an existing home, a period of six to eight weeks is generally recommended.
How much time you need depends on your mortgage application. A longer period may be sensible if you are self-employed, have a variable income, need documents from abroad or the lender needs to carry out additional checks. You need time not only for the application, but potentially also to receive a rejection that meets the requirements.
A short period can make your offer more attractive to the seller, but it increases your risk. Do not agree to an end date if your mortgage adviser has already said it will be very difficult to meet.
What should you do after your offer is accepted?
Start the mortgage application immediately. As the buyer, you will generally have an obligation to make a reasonable effort: you must do everything reasonably possible to obtain the agreed financing. Waiting, providing incomplete information or failing to submit requested documents may put a valid reliance on the condition at risk.
Read the purchase agreement carefully to see exactly which obligations apply. Pay particular attention to:
- the mortgage amount covered by the condition;
- the deadline;
- the requirements the mortgage must meet;
- how many rejections you must provide if you cancel the purchase;
- which additional documents are required;
- how and to whom you must submit the cancellation notice.
Sometimes one rejection is enough, but the agreement may require two rejections or other documents. The wording of your purchase agreement is decisive.
How do you invoke the financing condition?
If it turns out that you cannot get the agreed financing, you must cancel the purchase in writing before the deadline. Include all documents required by the purchase agreement. Make sure the seller or their estate agent receives the notice on time, and keep proof that it was sent and received.
Do not wait until the last day. A lender may need time to issue a formal rejection. Agree with your mortgage adviser who will monitor the deadline, but check it yourself as well. Ultimately, you are the party to the purchase agreement.
Is the deadline approaching while you still do not have a final answer? Ask for an extension in writing before the end date. The seller does not have to agree. Without a timely extension, you will generally bear the risk yourself if your application is rejected after the deadline.
Do you need NHG?
If Nationale Hypotheek Garantie is necessary for your financing or affordability, include a separate NHG condition. State that you may cancel the purchase if you cannot get a suitable mortgage with NHG.
A general financing condition alone may not be enough. A lender may be willing to offer a standard mortgage but not a mortgage with NHG. Without a separate agreement, it is not automatically clear that you can cancel the purchase.
What is the risk of making an offer without a financing condition?
Without a financing condition, you bear the risk that you cannot get the mortgage or that the valuation is lower than your offer. As a private buyer, you have a statutory three-day cooling-off period after receiving the purchase agreement signed by both parties. This period is not automatically exactly 72 hours. Once the cooling-off period has ended, you cannot rely on a financing condition that was not agreed.
If you are then unable to complete the purchase, many purchase agreements allow the seller to first give you formal notice of default and then demand completion or cancellation with a penalty. A penalty of 10% of the purchase price is common, but the terms of your purchase agreement are decisive.
Making an offer without a financing condition is therefore more than simply making your offer sound stronger. You accept the risk that you cannot pay the purchase price and additional costs while still being legally bound by the purchase. Only do this after your financial position, the own funds you need and the valuation risk have been assessed thoroughly.
