The financing condition is the most important safety net in your offer to purchase. It gives you the right to walk away — with your full deposit — if your lender will not approve the mortgage on the specific property you are buying. Here is how it works and why it matters.
How the financing condition works
The timeline
| Step | Day | What Happens |
|---|---|---|
| Offer accepted with financing condition | Day 0 | Clock starts. You and your agent have a set number of days to confirm financing. |
| Mortgage application submitted (if not already) | Day 0–1 | Your broker or lender submits the formal application with the property details. |
| Lender orders appraisal (if required) | Day 1–3 | Not all lenders require an appraisal — but if they do, it adds time. |
| Underwriter reviews file | Day 2–7 | Income verification, credit check, property review, GDS/TDS calculation. |
| Mortgage commitment issued | Day 3–8 | Lender issues a formal commitment letter with conditions (insurance, etc.). |
| Condition waived or deal cancelled | Day 5–10 | You notify the seller that financing is confirmed (waive) or that it was declined (condition not met). |
What the clause looks like in an offer
In Ontario (Agreement of Purchase and Sale), the financing condition typically reads:
This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a first mortgage for not less than [amount] of the Purchase Price, bearing interest at a rate of no more than [rate]% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about [payment] including principal and interest, and to run for a term of not less than [term] years from the date of completion of this transaction. Unless the Buyer gives notice in writing delivered to the Seller by [date] that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.
In BC, it is called a “subject” rather than a “condition”:
Subject to the Buyer obtaining approval of the financing described herein, on or before [date]. This subject is for the sole benefit of the Buyer.
What happens if financing is declined
| If Financing Is… | What Happens | Your Deposit |
|---|---|---|
| Approved | You waive the condition, deal becomes firm | Held in trust until closing |
| Declined within the condition period | You notify seller in writing, deal is cancelled | Returned to you in full |
| Declined AFTER you waived the condition | You are legally obligated to close | At risk — you may forfeit it |
| Still pending at condition deadline | You can request an extension (seller must agree) or exercise the condition | Returned if you exercise |
Critical point: The condition protects you ONLY if you exercise it before the deadline. If the deadline passes and you do nothing, the condition may be deemed waived depending on how the clause is written. Stay in close contact with your broker and agent as the deadline approaches.
Why financing gets declined after pre-approval
A pre-approval is not a guarantee. It confirms your income, credit, and debt ratios — but it does not account for the specific property. Common reasons financing is declined after pre-approval:
| Reason | Why It Happens | How to Prevent |
|---|---|---|
| Appraisal comes in low | Lender says property is worth less than purchase price — they will not lend the full amount | Include appraisal as a concern when setting your condition period. Have backup funds to cover a shortfall. |
| Property issues | Lender will not finance certain properties: grow-ops, flood zones, environmental contamination, unpermitted additions | Ask your agent about property history before offering. |
| Condo financial health | Status certificate shows underfunded reserve, upcoming special assessments, or high investor ratio | Make condition period long enough for status certificate review. |
| Borrower changes | Job loss, new debt, or credit score drop between pre-approval and application | Freeze your financial life between pre-approval and closing. |
| Zoning or title issues | Property does not conform to zoning, or there are title defects | Lawyer will uncover during title search. |
| Building type restrictions | Some lenders do not finance mobile homes, leasehold properties, or buildings with fewer than 4 units on a commercial floor | Confirm lender eligibility for the property type before offering. |
Typical condition periods by province
| Province | Common Financing Condition Period | Notes |
|---|---|---|
| Ontario | 5 business days | Standard in most GTA and Ontario markets |
| British Columbia | 5–7 calendar days | Called “subjects” — measured in calendar days in most cases |
| Alberta | 5–10 business days | Varies by market |
| Quebec | 5–10 business days | Promise to Purchase uses calendar days in some forms |
| Manitoba / Saskatchewan | 7–10 business days | Smaller markets often allow longer conditions |
| Atlantic provinces | 7–14 business days | Less competitive markets, more generous timelines |
When sellers push back on the financing condition
In competitive markets, sellers prefer offers without conditions because they are cleaner and more certain to close. You may face:
| Seller Response | What It Means | Your Options |
|---|---|---|
| Accepts with condition | Normal situation — proceed with getting financing confirmed | Continue as planned |
| Counters with shorter condition period | Seller wants faster certainty | Discuss with your broker — can they commit to faster turnaround? |
| Requests no financing condition | Seller prefers firm offers only | See “risks of waiving” below |
| Accepts a competing offer without conditions | You lost the bidding war | Make your next offer more competitive, or move on |
The risks of waiving the financing condition
| Risk | Consequence | Probability |
|---|---|---|
| Appraisal comes in below purchase price | You must find the shortfall in cash or renegotiate (seller may refuse) | Moderate in bidding wars |
| Lender declines the property type | No mortgage available — you must close with cash or default | Low but devastating |
| Financial situation changes (job loss, credit issue) | Cannot get any mortgage | Low |
| If you cannot close after waiving | Forfeit deposit ($20K–$100K+), seller can sue for damages (price differential, carrying costs) | — |
When some buyers choose to waive (with safeguards)
| Safeguard | How It Protects You |
|---|---|
| Pre-approval + pre-reviewed by underwriter | Lender has already reviewed your full file, reducing decline risk |
| Pre-offer appraisal or comparable sales analysis | Confirms property value before you offer |
| Cash reserves to cover any shortfall | If appraisal is $20K low, you can cover the gap |
| Backup financing from a second lender | If lender A declines, lender B is already in progress |
| Pre-offer inspection (separate from financing) | Removes the other major condition, making your offer competitive even with financing condition |
Best practice: Rather than waiving the financing condition entirely, ask your broker to get a lender review of the property before your offer deadline. Some brokers can get conditional approval within 24–48 hours for straightforward files.
Financing condition vs. other conditions
| Condition | Purpose | Who It Protects |
|---|---|---|
| Financing condition | Confirms mortgage approval for the specific property | Buyer |
| Inspection condition | Allows professional home inspection and repair negotiation | Buyer |
| Status certificate condition (condos) | Reviews condo corporation’s financial health | Buyer |
| Sale of buyer’s property | Gives buyer time to sell their current home | Buyer |
| Seller take-back mortgage | Seller provides financing as part of the deal | Both |
In most cases, financing and inspection are the two conditions you should always include. The status certificate condition is essential for any condo purchase.