Including the Loan Amount in a Suspensive Condition

When buying real estate, it’s common for the buyer to request a suspensive condition in the purchase agreement. This clause ensures that the sale will only proceed if the buyer secures a mortgage loan. While this offers security for the buyer, it’s crucial for both parties to specify the exact loan amount required. But why is this level of detail so important?

What is a suspensive condition?

A suspensive condition temporarily halts the execution of a contract until a specific requirement is met. In this case, the requirement is obtaining a mortgage loan. The seller must agree to include this clause in the purchase agreement. If the buyer is unable to secure financing, the sale is canceled without financial penalties for the buyer.

Why specify the loan amount?

Clearly stating the required loan amount in the suspensive condition helps avoid misunderstandings. This is particularly important if the buyer doesn’t need to borrow the entire purchase price but only a portion. Since early 2022, this has become even more relevant as banks now base loan approvals on the estimated value of the property rather than the agreed purchase price. This can result in a discrepancy between the amount the buyer wishes to borrow and the amount the bank is willing to lend.

Risks of a vague condition

If the loan amount isn’t specified, disputes may arise. For instance, if the bank approves only part of the loan, the seller may argue that the condition has been fulfilled, while the buyer might disagree if they didn’t receive the full amount they anticipated. Such disagreements can lead to delays or even legal conflicts, something both parties are eager to avoid.

Clarity is key

To prevent such issues, it’s strongly recommended to include the precise loan amount in the suspensive condition. This ensures transparency for both the buyer and the seller and minimizes the risk of disputes. Discuss this aspect with your notary or real estate agent to draft clear, mutually beneficial clauses in the purchase agreement.

Including a specific loan amount in the suspensive condition is a small but essential step that can make the transaction smoother and more secure for everyone involved.