First Time Buyers
Step 5 - Ready to Buy?
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Making an Offer to Purchase
Once you have found the home you would like to purchase, you need to present the vendor with an Offer to Purchase or an Agreement of Purchase and Sale. As your home is probably your biggest investment, it would be wise to work with your real estate agent and/or a lawyer/notary in preparing your offer. Remember that the Offer to Purchase or Agreement of Purchase and Sale is a legal document and should be carefully prepared.
Any offer or agreement will typically include:
- Your legal name, the name of the vendor and the legal civic address of the property.
- The purchase price offered.
- The chattels that will be included in the purchase price (for example, window coverings, appliances). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.
- The amount of deposit.
- The closing day (date you take possession of the home) — usually 30 to 60 days from the date of agreement. It can also be 90 days or longer. Generally, an Offer to Purchase obliges the purchaser to take possession of the house and property on a certain date. As of the closing date, the purchaser is responsible for taxes, utilities, repairs and maintenance.
- Request for a current land survey of the property.
- Date when the offer becomes null and void — that is, it is invalid.
- Any other conditions that go with the offer, including property inspection and approval of mortgage financing.
The process of making an offer, receiving a counter-offer and then revising it again is not uncommon.
The diagram below outlines the entire process for you in detail.
Steps for the Offer to Purchase
You
| Your real estate representative helps you prepare an Offer to Purchase. This offer should include all the details of the sale. | You may want your lawyer to look at the offer BEFORE you show it to the vendor, because it is a legally binding document. | Your real estate representative or lawyer will then present the offer to the vendor, who will accept (Situation 1), make a counter-offer (Situation 2) or reject (Situation 3). |
Vendor
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Situation 1 The vendor accepts your offer. The deal is concluded. |
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Situation 2 The vendor may make a counter-offer, asking for a higher price or different terms. |
You sign the offer back to the vendor with a higher price than your original offer, but lower than the vendor’s counter-offer. | The vendor accepts this counter-offer. The deal is concluded. |
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Situation 3 The vendor may make a counteroffer, asking for a higher price or different terms. If a counter-offer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating. You don’t want to get caught up in the heat of the moment with costs you can’t afford. |
You reject the counter-offer and decide not to make a subsequent counter-offer. | The sale doesn’t go through and your deposit is returned. |
A satisfactory home inspection report.When you make an Offer to Purchase, your real estate agent or your lawyer/notary will most likely add certain conditions to it, making it a conditional offer. This means that the contract will only become final when the conditions are met. The following three conditions are generally standard in an Offer to Purchase, especially for first-time buyers:
- A satisfactory home inspection report.
- A property appraisal.
- Lender approval of mortgage financing to finance the purchase.
Once these requirements are met, the conditions are removed and the Offer to Purchase becomes final.
For Condominiums or Strata Units
To buy a resale condominium or strata unit, you will have to get a satisfactory Estoppel Certificate or Certificate Status. This should be included as a condition in the Offer to Purchase.
Mortgage Approval
A pre-approved mortgage certificate is not a guarantee of being approved for the mortgage loan. Even if you have a pre-approved mortgage certificate, you must still meet your lender during the conditional offer period to get a final mortgage approval. To ensure that the process goes smoothly, make sure you bring:
- A copy of the property listing; and
- A copy of the signed Offer to Purchase.
Your lender will update/verify your financial information, and put together the information required to complete the mortgage application. Your lender will also inform you about the various types of mortgages, terms, interest rates, amortization periods and payment schedules available. Depending on your down payment, you may have a conventional or high-ratio mortgage.
Conventional Mortgage
A conventional mortgage is a mortgage loan that does not exceed 80% of the lending value of the property. Your down payment is at least 20% of the purchase price or market value.
If you contribute less than 20% of the home price as a down payment you will typically need a high-ratio mortgage. This type of mortgage usually requires mortgage loan insurance. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.
Fixed, Variable or Adjustable Interest Rate Mortgage interest rates are either fixed, variable or adjustable. A fixed rate is a locked-in rate that will not increase for the term of the mortgage. A variable rate fluctuates based on market conditions while the mortgage payment remains unchanged. With an adjustable rate, both the interest rate and the mortgage payment vary based on market conditions.
Closed Mortgage
A closed mortgage may be a good choice if you’d like to have a fixed payment that will allow you to adjust your budget to your new lifestyle.
Open Mortgage
This type of mortgage is flexible and can usually be pre-paid by any lump sum or paid off at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future or to pre-pay with large lump sums.
Term
The term is the length of time that the agreed-upon mortgage contract conditions, including interest rate, will be fixed. It can vary from six months to 10 years. Choosing a longer term (for example, five years) gives you the chance to plan ahead and protects you from interest rate increases while you adjust to homeownership.
Amortization
This is the amount of time over which the entire debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available.
Payment Schedule
A mortgage loan is often repaid in regular payments, either monthly, biweekly or weekly. Payment schedules that are more frequent can save some interest costs by reducing the outstanding principal balance more quickly than with monthly payments. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.
Once the Offer is Accepted
Once all the conditions of the offer are fulfilled or removed, it is time to start thinking ahead and making arrangements:
- Give notice to your landlord if you are renting.
- Start looking at moving options.
- Make necessary address changes.
- Arrange for property insurance.
An offer will usually include a clause that allows the buyer to revisit the property a couple of times before closing (after all the conditions are fulfilled) so that he/she can:
- Measure for window treatments.
- Measure for special-sized furnishings.
- Bring in a tradesperson for a renovation or remodelling estimate.
Arrange for these visits in advance to make sure your real estate agent is available.
