Humber/Ontario Real Estate Course 3 Exam Practice

Which statement correctly describes financing clauses?

1. A conditional clause for a new mortgage should specify minimal terms

2. A conditional mortgage clause should be in a condition subsequent format

3. Assuming a mortgage rarely involves lender qualification requirements

4. Mortgage assumption clauses requiring lender approval are true condition precedents

5. The minimum interest rate should be part of the clause

6. The mortgage amount does not need to be specified upfront

The correct answer is: Mortgage assumption clauses requiring lender approval are true condition precedents

The statement regarding financing clauses that accurately reflects standard practices is that mortgage assumption clauses requiring lender approval are true condition precedents. This indicates that the completion of a real estate transaction is contingent upon the lender’s acceptance of the buyer taking over the existing mortgage. In such cases, the buyer must meet specific criteria set by the lender for the assumption to be approved. Condition precedents are essential elements that must be fulfilled before a contract becomes binding, and in the context of mortgage assumptions, lender approval is a critical step that ensures both the lender and buyer acknowledge the transfer of financial responsibility. This protects the lender’s interests by ensuring that the new borrower meets the necessary creditworthiness and financial requirements. In contrast, other statements may not align with common financing practices. For example, while specifying minimal terms in a conditional clause might be useful, it does not address the fundamental requirement for lender approval. A condition subsequent format may apply in different contexts but isn't specifically tied to mortgage assumptions. Additionally, assuming a mortgage typically does involve lender qualification requirements, and it would usually be necessary to specify the mortgage amount upfront to clarify what the buyer is assuming. Finally, while interest rates can be relevant in financing clauses, the focus in this context is on the lender's approval as a