Home Buying, Step by Step

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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 (e.g.: window coverings, appliances or a satellite dish). 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.
• Request for a current land survey of the property.
• Date when the offer becomes null and void.
• Any other conditions that go with the offer, including property inspection and approval of mortgage financing.

The diagram below outlines the entire process for you in detail.

Steps for the Offer to Purchase

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.

It is always a good idea to have the home you are buying inspected by a knowledgeable and professional home inspector. The inspector will go through the property and perform a comprehensive visual inspection to assess the condition of the house and all of its systems. When you receive the home inspection report, you and your real estate agent will have to discuss how required repairs may affect the sale price that was agreed upon.

A home inspector is not used as frequently for new homes if the builder provides a New Home Warranty. Warranty coverage varies from one province to another, but typically covers labour and materials in your new home for at least one year after completion. It is also intended to address structural defects for a minimum of five years, and up to ten years with some extended coverage options. A dollar cap is common. Before you sign a contract for a new home, contact your New Home Warranty Program office for a list of registered builders in your area.

To buy a resale condominium or strata unit, you will have to get a satisfactory Estoppel Certificate or Certificate Status (does not apply in Quebec). 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
• A copy of the signed Offer to Purchase

Your lender will update/verify your financial information, the property and other information required to complete the mortgage application. Your lender may require an appraisal and/or a survey. Title insurance may also be required. Your lender will also inform you on 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.

A conventional mortgage is a mortgage loan that does not exceed 75% of the lending value of the property. The lending value is typically the lesser of the property's purchase price and market value. Your down payment is at least 25% of the purchase price or market value.

If you contribute less than 25% of the home price as a down payment - and as little as 5% - you will need a high-ratio mortgage . This type of mortgage usually requires mortgage loan insurance, which is available from CMHC or a private company. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.

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.

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. However, closed mortgages are not flexible and there are often penalties or restrictive conditions attached to prepayments or additional lump sum payments. It may not be the best choice if you decide to move before the end of the term or if you want to benefit from a potential decrease of interest rates.

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. Most lenders will allow you to convert to a closed mortgage at any time, although you may have to pay a small fee.

Your lender will also inform you on the term options for the mortgage. This 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 ten years. Choosing a longer term (e.g.: five years) gives you the chance to plan ahead and protects you from interest rate increases while you adjust to homeownership. Weigh your options carefully and don't be afraid to ask your lender to work out the differences between a one, two, five-year term or longer term.

This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15, 20 or 25-year periods. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run

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.

Keep in mind that mortgages may have important payment features that can save you money and let you be mortgage-free sooner.

Once all the conditions of the offer are fulfilled or dropped, it is time to start thinking ahead and making arrangements:

• Give notice to your landlord if you are renting.
• Start looking at moving options - hiring a professional or doing it yourself.
• Make necessary address changes (utilities, services, post office). See the Moving to Your New Home worksheet for a more complete list of who to contact.
• Arrange for property insurance.

• Measure for window treatments.
• Measure for special-sized furnishings.
• Bring in a tradesperson for a renovation or remodelling estimate.

New Home Warranty Programs