Can you bid on a home while you are still arranging your mortgage?

One of the things I have come to realise in my many years of advising people on getting a mortgage and buying a home is that everyone, no matter how well prepared they think they are, has questions. One issue we often get questions about is if you can start the buying process without waiting for the financial side of things to be approved.

Bidding with a financial cancellation clause

In the Netherlands, there's no such thing as a mortgage pre-approval. That's why many buyers bid on a property with a financial cancellation clause, known as "voorbehoud van financiering”. A draft contract that includes the clause “subject to financing” usually gives you four to six weeks to sort out the money side of things. If you don't succeed in arranging a mortgage, you can cancel the purchase without penalties.

Bidding without a financial cancellation clause (zonder voorbehoud van financiering) 

To get a leg up in the market, some people choose to strike this clause from their bid. This is known as bidding zonder voorbehoud van financiering. What this means is that, if you bid on a house or flat zonder voorbehoud van financiering and the deal falls through because you fail to get financing from a lender, you are committing to pay a forfeit - usually 10 percent of the purchase price. For example: if you agree to buy an apartment in Rotterdam that costs €400.000 and your bank says no, you will have to pay the seller €40.000 in compensation.

Doing this may well increase your chances of being the lucky buyer. This is because, if lots of people are bidding on a property, the seller may prefer the easiest option, and that often means not having to worry about the finances. With a possible penalisation in place, the seller can be more sure you won't pull out of the sale. And if you do, they will be fairly compensated. So, by making an offer without a financial cancellation clause, you are helping to make your offer as attractive as possible.

Competitive advantage?

But is this something you should seriously consider? It depends on how certain you are that your mortgage application will be approved. You will need to have a permanent work contract or be able to show that your employer plans to take you on permanently, for example. If you don't have either of these things, or you have a bad credit rating or anything else that could make you look like a risky prospect to a lender, it could be a financially risky move.

The bottom line, and I cannot stress this enough, is to get proper advice first. After all, buying a house concerns serious money.