24 Jun

Subject Free Home Purchase Offers

General

Posted by: Jacqueline Weir

Happy couple first home

When purchasing a home, most offers include conditions or subjects, which are criteria that must be met before the sale can be finalized. These conditions protect the buyer from making a poor investment and ensure no hidden surprises regarding financing, insurance, or the property’s condition. Common subjects include:

  • Financing Approval
  • Home Inspection
  • Condo Status Review (if applicable)

These conditions are written into the purchase offer with a date of removal, agreed upon by the seller. If the subjects are lifted by this date, the sale proceeds. If not, the buyer can waive the offer, making the purchase void.

subject free home purchase

The Rise of Subject-Free Offers

Recently, especially in competitive housing markets, subject-free (or condition-free) offers have become more common. These offers are submitted without any conditions, essentially accepting the property "as-is."

Impact on Buyers and Sellers

Pros of Subject-Free Offers:

Buyers: The primary advantage for buyers is the ability to outbid the competition in a heated market.
Sellers: These offers typically include a competitive price and a willingness to meet the seller's preferred dates. If the seller needs a quick sale, they may prefer subject-free offers.

Cons of Subject-Free Offers:

condition free purchase offer

Buyers: Submitting a subject-free offer carries significant risks:

Financing: Pre-approval is not a guarantee of financing. If financing falls through, the deal can fail, and the buyer might lose their deposit.
Inspection & Insurance: Skipping the home inspection and insurance subjects means the buyer might face costly surprises.
Due Diligence: Without subjects, there’s no chance for due diligence after the offer. The buyer must thoroughly research before bidding, as backing out can have serious legal consequences.

Sellers: While there’s less risk for sellers, they cannot be certain that financing will be secured.

Financing Around Subject-Free Offers

Buyers must do as much due diligence as possible before submitting a subject-free offer. This includes talking with a mortgage agent to aid in securing financing. Though approval is never certain, prospective buyers should aim to secure financing beforehand.

Contractual Obligations

Understand the difference between a purchase offer and a purchase agreement:
Purchase Offer: A proposal to purchase with set terms.
Purchase Agreement: A full contract between buyer and seller. If financing falls through, the contract is breached, potentially resulting in the loss of the buyer’s deposit.

Preparing a Subject-Free Offer

realtor showing homeIf you decide to proceed with a subject-free offer with your real estate agent, consider these steps to mitigate risks:

Get Pre-Approved: Obtaining a pre-approval from your lender is a critical first step. This process helps determine your likelihood of securing a mortgage based on your financial situation. While pre-approval is not a guarantee of financing, it shows that you meet the basic criteria for a mortgage.

  • Maintain Financial Stability: Avoid large purchases or taking on new debt.
  • Keep Documentation Updated: Ensure all financial records are current and readily available.

Do Your Due Diligence: Thoroughly investigating the property before making an offer is crucial:

  • Property Condition: Check for any signs of damage, necessary repairs, or renovations.
  • Neighbourhood: Research the area for factors like crime rates, school quality, and future developments.
  • Property History: Look into past sales, previous ownership, and any legal issues associated with the property.

Get Legal Advice: Understanding the legal implications of a subject-free offer can save you from future problems:

  • Consult a Real Estate Lawyer: Get professional advice to comprehend the risks and potential legal ramifications.
  • Contract Review: Have your lawyer review the purchase agreement to ensure there are no unfavourable terms or hidden clauses.
  • Risk Assessment: Discuss the possible outcomes if the deal falls through, including financial and legal consequences.

Title Review: Ensuring the property’s title is clear is essential to avoid future disputes:

  • Title Search: Conduct a comprehensive title search to confirm there are no liens, encumbrances, or legal claims against the property.
  • Verify Ownership: Ensure the seller has the legal right to sell the property.
  • Title Insurance: Consider purchasing title insurance to protect against future title disputes.

Insurance: Securing insurance for your home is a critical step:

  • Pre-Approval for Insurance: Confirm that you can obtain insurance coverage for the property.
  • Inspection Requirements: Be aware that some insurance companies may require a home inspection before issuing a policy.
  • Adequate Coverage: Ensure the insurance policy covers potential risks, including natural disasters, theft, and liability.

Strata Documents (if applicable): For properties governed by a strata corporation, reviewing these documents is vital:

  • Lawyer Review: Have your lawyer examine strata documents, including meeting minutes, bylaws, and financial statements.
  • Assess Financial Health: Evaluate the strata’s financial health to ensure there are no looming special assessments or financial issues.
  • Rules and Regulations: Understand the strata’s rules, including restrictions on renovations, pets, and rentals, to ensure they align with your lifestyle and plans.

Final Thoughts

While submitting a subject-free offer can be advantageous in a competitive market, it is risky. Ensure you discuss this with your real estate agent and mortgage expert to make an informed decision. A good realtor will help minimize your risks while maximizing your opportunities.

Jacqueline Weir, Level 2

Mortgage Agent Level 2

Email: jacqueline.a.weir@gmail.com
Tel: 905-264-8444
Cell: 416-884-4526

Address

101-1 Director Court
Vaughan, ON
L4L 4S5, Canada

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8 Mar

Closing Costs Explained

General

Posted by: Jacqueline Weir

Closing costs explained

Once you are pre-approved for a mortgage that will help you to find the home of your dreams, your next step is to consider what other costs are involved. Many first-time homebuyers underestimate the amount they will need. Generally speaking, you’ll want to budget between 1.5% and 3% of the purchase price of the home to cover closing costs. These closing costs and additional expenses can impact your offer, the size of your down payment and the amount of mortgage you can qualify for. Only a few of the closing costs are optional, so be aware of these costs from the start.

Costs before your mortgage closes

Home Inspection

Closing costs calculator

A home inspection is a great idea to make sure that there is nothing majorly wrong with the home before you take ownership. You can make the home inspection a condition of the purchase offer. A home inspector will assemble a report on the condition of the home for a fee of around $500, depending on the complexities of the inspection.

Deposit

Your deposit counts towards your down payment that is required when you make your offer to purchase a house. Your deposit shows the seller that you are serious and committed to buying their property. Unlike the down payment, there is no minimum payment.

Costs included in your mortgage closes

Mortgage Default Insurance

DownpaymentOnly required when you are putting down less than 20% for your downpayment. This is added to the total mortgage that you require and it is amortized over the life of your mortgage. This insurance protects the lender in case the borrower (you) defaults on the loan.
Based on the amount of your downpayment the percentage of your mortgage insurance changes:
5% to 9.99% = 4%
10% to 14.99% = 3.1%
15% to 19.99% = 2.8%
Check out how you can avoid paying mortgage default insurance here, CMHC insurance.

Mandatory closing costs covered by the home buyer

Lawyer Fees

Real estate lawyerWhen you buy a house and get a mortgage, it is customary for real estate lawyers to be involved in the home buying process. You will want to start working with a real estate lawyer as soon as you want to sign an offer to purchase if you are buying a house. If you are doing a refinance you only need to see a real estate lawyer to sign the required document for the new mortgage. Lawyers will typically cost $1500 but it is best to talk to your lawyer and find out what their fees are.

Insurance

In Canada, it is important to have property insurance in place for when you take possession of your new property. This property insurance should cover the home and its contents. It will either be paid in monthly or annual premiums. Your mortgage lender will require proof of insurance in order for you to receive the money.
Most insurance companies will want you to have your home inspected before insuring the property. Go through these proceedings early so you don’t encounter any problems when you want to move into your new home.

Title Insurance

Most lenders require title insurance so that they are protected against any losses in the event of a property ownership dispute. This will be purchased through your lawyer or notary and approximately costs $100-$300.

Title Search

Land transferThis can sometimes be included in the lawyer fees or the lender fees. If it is not included in one of those fees, you’ll pay approximately $30 for a title search to be conducted. It is important to conduct a title search. A title search is important because it will make sure that the title is free and clear of any issues, such as liens. It will also ensure that the person selling you the home has the legal right to do so.

Land transfer taxes

When a property is transferred from one person to another, there is a land transfer tax applied. For homebuyers in the GTA, there are two separate land transfer taxes to be paid: municipal and provincial. Land transfer tax is calculated as a percentage of the purchase price of the home that is payable on closing. They tend to be between 0.5% and 2%.

Adjustments

If you are purchasing a property from someone else you will need to pay them back for any property taxes, utilities or condo fees that they have already paid. The adjustments will be done for you by the lawyers.

Property Taxes

Property taxes are calculated as a percentage of the value of your home. It varies by municipality and needs to be paid every year. Your lender will give you the option to have an automatic payment plan set up with them. If you choose to do this your lender will set up an account for you, collect the additional money per month and then pay property taxes on your behalf. Many homeowners find this service extremely valuable for budgeting purposes.

Mandatory closing costs covered by the home buyer

Closing Day

The day that you finally take legal possession of your new home. It is highly important that the blue of your administration is complete by this point. That includes transferring your down payment to your lawyer. Transferring your down payment funds, especially from your RRSP can take time, and should be done several days before closing.Closing day

On the closing date, the following events will take place:
Your lender will provide the mortgage funds to your lawyer.
You must provide your down payment less the deposit to your lawyer along with the closing costs.
Your lawyer pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.

Closing Remarks

Now that you understand all of the closing costs involved in home buying you’re ready to look for a home. Get pre-approved today.

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