Bidding without reservation of financing, in the heated housing market it seems to happen more and more often. It might sound like an interesting option to increase your chances of getting your dream house, but beware of the big risks! In this blog we will explain why it is important to carefully consider whether you can and want to make an offer without a reservation of financing.
What is a reservation of financing?
Before discussing the risks, let us first briefly explain what the caveat actually entails. Most people who buy a house do so by taking out a mortgage with a bank. The actual arrangement of the mortgage usually starts when you become the buyer.
From that moment on, everything will be checked, such as your income and any debts. In addition, the bank usually wants to get a valuation of the property. With this, the bank knows for sure that there is sufficient security in case you cannot pay the mortgage anymore.
It may happen that the bank decides not to lend you the money. For example, because you have a temporary contract, or because the appraisal value is too low. If you have included a financial reserve in your offer, you can in such cases cancel the purchase free of charge.
The risks of bidding without reservation of finance
Especially in the current tight housing market, it seems attractive to bid without a reservation of financing. This gives the seller a lot more security. This allows reservations to play a role in a seller's assignment process.
Nevertheless, it is wise not to underestimate the risks. Suppose you have made an offer without reservations and you do not get the mortgage, you are still obliged to take the house. In practice, of course, almost nobody manages to do this, which means that a penalty of 10% of the purchase price is applied.
Example: an average house in the Netherlands now costs about 334,000 euros. A fine in such a case is then already 33,400 euros!
Therefore, always think carefully about including a financial reservation. If things go wrong, you will have to pay a penalty and will still not have a home.
How do you incorporate a financing reservation properly?
If you want to make use of a financial reserve, you have to give a number of fixed values when you make an offer. This may seem like a lot of information, but it is necessary to include it correctly in a purchase agreement. In addition, when more information is requested, a broker can better inform the seller about a suitable buyer.
A financing reservation must contain the following points:
1. The amount
You can choose to have the reservation apply to the full purchase price or just a part of it. If, for example, you have savings that you want to use for buying a house, you automatically need less mortgage.
2. The duration of the reservation
In most cases you indicate how long you think you will need to arrange the mortgage. Usually this is between 4 and 8 weeks. Please note that many mortgages that can be arranged quickly are currently advertised online. Nevertheless, you should be well advised about these products. Particularly in the heated housing market, the waiting times for a mortgage can be considerable!
Optional: consultant's statement
Have you already visited a mortgage consultant or financial advisor in preparation for your search? Then a possible statement can be useful when making an offer. With such a statement you can show the broker and seller that there is less risk in obtaining a mortgage.
Reserved via Eerlijk Bieden
In the online bidding system of Eerlijk Bieden you can easily pass on all your reservations for a bid. By using the 'digital notary method' you can consider at your leisure which reservations you might want to include, so that you do not have to take any unnecessary risks! More information on financial reserves can be found here.
Good luck with the bidding for your new home!