The time frame required for obtaining a mortgage undertaking

(Update of the article published on February 3, 2014)

A time frame is indicated in the Promise to purchase to provide the seller with a copy of the mortgage lender’s undertaking to grant the buyer a loan that meets the specified conditions. It must be adapted to the constraints of the market and must allow meeting the requirements and procedures of lenders. With a few exceptions, it should be about 14 days, taking into account weekends in order for the due date not to fall on a Saturday or a Sunday and be even longer when there are statutory holidays.

Allow a sufficient time frame

To avoid the risk of limiting the choice of lenders and intermediaries, and especially the risk of compromising the possibility to obtain the loan within the prescribed time frame, it is better to allow a sufficient number of days. Otherwise, the lender may send a conditional approval that does not meet the financing clause of the Promise to purchase. Moreover, a too short time period may force the buyer to ask for an extension, which might be denied by the seller. However, in accordance with the established mechanisms, the promise to purchase may become null and void if the buyer does not have time to fulfill his condition within the specified time frame.

The time frame must allow the buyer to take the necessary steps to obtain the loan with a mortgage broker, and allow the financial institution to examine the client’s application. Remember that if the buyer has already taken these steps with such a broker, it is recommended to contact the latter to ensure that the time frame to be indicated in the promise to purchase is sufficient, especially if it is short. Furthermore, if the buyer concluded a brokerage contract to obtain a mortgage loan, the exclusive nature of this contract must be respected.

The buyer should take steps to obtain a loan before presenting his promise to purchase. If he chooses to entrust this task to a mortgage broker, the real estate broker acting as an intermediary in the transaction shall advise him to choose one who has the knowledge and experience relevant to the type of morgage loan wanted (for example a residential or commercial mortgage loan) to represent him properly.

Factors to be considered

Many factors are to be taken into account before choosing the time frame to be included in the mortgage undertaking clause. For example:

• What are market conditions? Is it a time of the year when many applications are submitted to lenders?
• What is the buyer’s source of income? Is he an employee or a self-employed? Does he operate one or many companies from which he derives his income? Have these companies started operating recently or are they well-established?
• Since the time frame is calculated in consecutive days, does it include weekends or statutory holidays, because this gives less time to lender to examine the application and provide a mortgage undertaking?
• What are the steps already taken by the buyer with the lender or mortgage broker that may reduce delays in obtaining a loan (e.g.: obtainment of a mortgage pre-approval)?
• Does the buyer have the documents required for the examination of a mortgage application?
• Is an evaluation report by a chartered appraiser necessary?
• Should the mortgage loan be insured?
• Do other conditions of the promise to purchase have an impact on the time frame? For example, will an inspection report be required by the lender?

For more information about the mechanisms of the new mortgage loan clause, please read the article entitled Promise to purchase and financing of an immovable - The importance of the section relating to new hypothecary loan.