Humber/Ontario Real Estate Course 3 Exam Practice

When setting the timeframe for a mortgage financing conditional clause, what should be considered for a high ratio mortgage?

1. In a seller's market, the timeframe could be extended as there are more properties on the market than buyers

2. A longer conditional timeframe may be necessary for a high ratio mortgage

3. Most agreements would include a 25 – 30 day timeframe to arrange a new first mortgage

4. The conditional timeframe can be waived altogether

5. In a buyer's market, the timeframe would not be extended, as the seller may not want to tie up their property with lengthy conditions

6. A shorter conditional timeframe is always preferred in a buyer's market

The correct answer is: A longer conditional timeframe may be necessary for a high ratio mortgage

When considering the timeframe for a mortgage financing conditional clause for a high ratio mortgage, it is often necessary to account for the unique challenges associated with such financing. High ratio mortgages, which are typically defined as those loans where the borrower is putting down less than 20% of the purchase price, involve mortgage insurance and a more stringent approval process, primarily from lenders. This approval process may require additional documentation and verification, especially if the lender needs to assess the borrower's creditworthiness and financial situation more closely. Therefore, allocating a longer conditional timeframe provides both the buyer and lender ample opportunity to complete these necessary steps without the pressure of a tight deadline that could lead to missed opportunities to secure financing. While shorter timeframes can be advantageous in certain situations, particularly in competitive markets, a high ratio mortgage generally necessitates a longer approach to ensure all financing conditions are satisfactorily met. This is crucial in mitigating potential risks for both the borrower and the lender in the purchase transaction.