{"id":20768,"date":"2022-04-05T08:00:00","date_gmt":"2022-04-05T12:00:00","guid":{"rendered":"https:\/\/www.zolo.ca\/blog\/?p=20768"},"modified":"2025-02-12T12:29:57","modified_gmt":"2025-02-12T17:29:57","slug":"how-much-to-offer-on-house","status":"publish","type":"post","link":"https:\/\/www.zolo.ca\/blog\/how-much-to-offer-on-house","title":{"rendered":"How Much Should You Offer When Buying a House?"},"content":{"rendered":"\n\n\n

Buying a home is a considerable investment, and figuring out how much to spend can be tricky. You’ll have to cover the down payment, the mortgage, and any closing costs<\/a> associated with the transaction. A home will likely be the most expensive thing you ever purchase for many of us, but it should have good value and be something you can afford. So, how much should you offer when buying a house? Let’s dig in.<\/p>\n\n\n\n

How Much are You Required to Put as a Down Payment in Canada?<\/strong><\/h2>\n\n\n\n

One of the first things you need to consider when figuring out how much to offer when buying a house is how much you can afford to spend on the down payment. In Canada, the minimum down payment will depend on the home’s purchase price. These are the current down payment minimums set by the Government of Canada.<\/a><\/p>\n\n\n\n

\n \n \n \n \n <\/colgroup>\n \n\n \n\n \n \n \n
Purchase Price<\/th>Minimum down payment required<\/th><\/tr>\n<\/thead>\n
Up to $500,000<\/td>5%<\/td> <\/tr>\n
Between $500,000 and $1,499,999<\/td>5% on the first $500,000 of the purchase price, 10% on the portion of the purchase price above $500,000<\/td> <\/tr>\n
$1,500,000 and up<\/td>20%<\/td> <\/tr>\n <\/tbody>\n <\/table>\n \n \n \n<\/div>\n\n\n\n\n

Note that your lender may require more if you are self-employed or have a poor credit history. Additionally, if your down payment is less than 20% of the home price, you must purchase mortgage loan insurance. <\/p>\n\n\n\n

How Do We Determine the Value of a Property?<\/strong><\/h2>\n\n\n\n
\"How<\/figure>\n\n\n\n

When determining the property’s value, there are three key things to look at to know how much to offer on a house: what type of market you are in, how long the home has been on the market, and the pricing of comparable homes in the area.<\/p>\n\n\n\n

What Type of Market Are We In?<\/strong><\/h3>\n\n\n\n

A buyer’s market is when real estate inventory is high, but the number of interested buyers is low. In this type of market, buyers have the advantage and can often negotiate lower prices. <\/p>\n\n\n\n

A seller’s market is the opposite; plenty of interested buyers but limited real estate inventory. In these situations buying a home can become very competitive as would-be buyers will offer above the asking price to get the property. <\/p>\n\n\n\n

Length of Time on the Market<\/strong><\/h3>\n\n\n\n

Another critical factor to consider when determining how much to offer on a house is how long it’s been on the market. Therefore, if it’s been around for a while, you have a better chance of the seller accepting a lower offer. Especially if the homeowner is in a rush to sell. But, keep in mind, you’ll want to do your due diligence before you make an offer. The house may have been on the market for a long time for a reason. <\/p>\n\n\n\n

Comparable Homes in the Area<\/strong><\/h3>\n\n\n\n

Finally, do some research and look at the pricing of similar homes in the area. This should also help you figure out how much to offer on the house. Again, you can tap your real estate agent for this information or see if sold home data is available in your province to do more thorough research.  <\/p>\n\n\n\n

Related content<\/p>

How to Find Sold Home Data in Canada<\/a><\/p><\/section>\n\n\n\n

Should You Aim for a Low Offer, List Price, or High Offer?<\/strong><\/h2>\n\n\n\n
\"How<\/figure>\n\n\n\n

When you’re looking to find how much you aim to offer, it will largely depend on the type of market, the house itself, and your budget. <\/p>\n\n\n\n

If it’s a seller’s market, you will have a difficult time going below the asking price. Likewise, you’ll probably have a difficult time getting the list price. In a seller’s market, the demand for a home is high, so potential buyers will often offer more than the asking price from the start. <\/p>\n\n\n\n

Sometimes this can result in a bidding war<\/a> which may see a property go for significantly more than the original asking price. So again, do your due diligence and research and compare the other costs in the area. But know that if it is a seller’s market and you have your heart set on a specific property, you will likely have to make a higher offer.<\/p>\n\n\n\n

Alternatively, it will be much easier to get a home for the original asking price in a buyer’s market. Depending on the circumstances, you might want to make a lower offer to see if the owner is willing to drop the price. This is especially true if the home has been on the market for a while or if similar homes in the area have been selling for a lower price.<\/p>\n\n\n\n

You’ll also need to think about how much you want the home. If this is your dream home, then maybe it’s worth bidding list price or more to ensure you get it. But, don’t forget to factor in any renovations or work that will need to be done and add to the cost and what you afford. No matter how much you love a home, you still need to ensure that you stay within your budget.<\/p>\n\n\n\n

Crucial Consideration: What Can You Actually<\/em> Afford to Offer?<\/strong><\/h2>\n\n\n\n
\"happy<\/figure>\n\n\n\n

Although you can do all of the mental gymnastics to determine what a good offer is on a home, the most essential rule is to remember what you can actually<\/em> afford to offer. So, how do you know what your budget should be and how much you can afford? First, you’ll need to figure out your maximum affordability<\/a>. Here’s how to do that.<\/p>\n\n\n\n

Step 1:  Figure out your finances<\/strong><\/h3>\n\n\n\n

To see where you stand as far as mortgage approval goes, you\u2019ll want to look at your annual income, how much you have saved for a down payment, and the total costs to own including property taxes, monthly heating costs, and monthly debts. Lenders will look at your current debt levels using Gross Debt Service<\/a> (GDS) and Total Debt Service (TDS) ratios. These two ratios measure your income in comparison to the monthly cost of living and your overall debt repayment costs.<\/p>\n\n\n\n

Keep in mind that when it comes to your debt levels, lenders consider limits to ensure that a homebuyer won\u2019t be stretched to the limit with the additional cost of a mortgage. The Canadian Mortgage and Housing Corporation (CMHC) limits your GDS to 39% and your TDS to 44%. <\/p>\n\n\n\n

Let\u2019s look at the following example using some real-life numbers.<\/p>\n\n\n\n

Category<\/td>Amount<\/td><\/tr>
Annual Income<\/td>$80,000<\/td><\/tr>
GDS ratio<\/td>32% <\/td><\/tr>
TDS ratio<\/td>40%<\/td><\/tr>
Down payment <\/td>$40,000<\/td><\/tr>
Annual property tax<\/td>$3,900<\/td><\/tr>
Monthly heating costs<\/td>$220<\/td><\/tr>
Monthly car payments<\/td>$250<\/td><\/tr>
Monthly credit card payments<\/td>$200<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Step 2: Determine maximum affordability based on your GDS<\/strong><\/h3>\n\n\n\n

Now that you know what your GDS is, let\u2019s consider the math to determine what you can afford. To do this, you\u2019ll want to multiply your annual income by the GDS percentage \u2014 which does not include any revolving debts.<\/p>\n\n\n\n

Example: $80,000 (annual income) x 32% (GDS ratio) = $25,600 <\/p>\n\n\n\n

From there, you\u2019ll add in the additional expenses. If your maximum spend is $25,600, take that number and subtract your annual expenses, including, from this example, property taxes and heating. This will provide you with your maximum allowable mortgage payments annually. <\/p>\n\n\n\n

Maximum Spend<\/td>$25,600<\/td><\/tr>
Annual Property Taxes<\/td>– $3,900<\/td><\/tr>
Annual Heating Cost<\/td>– $2,640<\/td><\/tr>
Maximum Annual Mortgage Payment<\/strong><\/td>$19,060<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

If you take your maximum annual mortgage payment of $19,060 and divide that by 12 months, you\u2019ll find that $1,588.33 is your maximum monthly mortgage payment.<\/p>\n\n\n\n

Step 3: Find your maximum affordability based on your TDS score <\/strong><\/h3>\n\n\n\n

You can repeat the same math to determine your affordability based on your TDS ratio, which includes your additional debts.<\/p>\n\n\n\n

Example: $80,000 (annual income) x 40% (TDS ratio) = $32,000 <\/p>\n\n\n\n

Maximum Spend<\/td>$32,000<\/td><\/tr>
Annual Property Taxes<\/td>– $3,900<\/td><\/tr>
Annual Heating Cost<\/td>– $2,640<\/td><\/tr>
Annual Car Payments<\/td>– $3,000<\/td><\/tr>
Annual Credit Card Payments<\/td>– $2,400<\/td><\/tr>
Maximum Annual Mortgage Payment<\/strong><\/td>$20,060<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

If you take your maximum annual mortgage payment of $20,060 and divide that by 12 months, you\u2019ll find that $1,671.67 is your maximum monthly mortgage payment.<\/p>\n\n\n\n

You will want to stick with the lowest number of these two calculations to ensure that you stay within the limits of the GDS and TDS maximums. In this example, that would be $1588.33 per month. This is your maximum affordability, so you can then use this number and your down payment amount ($40,000 in this example) to use as a basis to determine your budget and affordability based on the houses you look at and the mortgage rates you are offered. Remember, this is your maximum <\/em>affordability. Ideally, you\u2019d like a bit of safety cushioning and should try for less. <\/p>\n\n\n\n

If the math sounds painful, you can also use a maximum affordability calculator<\/a> to determine your numbers or speak with a mortgage professional to have them provide you with a more specific idea of what your options are. <\/p>\n\n\n\n

What Math Do Real Estate Investors Use to Determine Their Offer Price?<\/strong><\/h2>\n\n\n\n
\"relaxed<\/figure>\n\n\n\n

Now that we’ve discussed what can impact the pricing of homes and how to calculate how much you can afford to spend on a home, it’s time to look at the pros. Individuals who invest in real estate have different considerations when determining their offer price. This is where the 70% rule comes into play. <\/p>\n\n\n\n

House flippers commonly use the 70% rule to ensure that they make a decent profit when ready to sell or ‘flip’ the home. This means that they figure they should pay, at most, 70% of the after-repair value of the property after<\/em> the cost of repairs necessary to renovate the home. <\/p>\n\n\n\n

From there, they need to figure out how much the property could sell for after renovations (this is the after repair value or ARV for short). So they multiply this by 70%, subtract the estimated costs for any upgrades, and the end number is the highest price they consider paying. <\/p>\n\n\n\n

For example, if the after repair value is $600,000, multiply that by 0.70 to get 420,000. Now subtract the estimated repair costs. We’ll say $30,000, which leaves us with $390,000. This, in theory, would be the maximum amount to offer on the home in question.<\/p>\n\n\n\n

While this is a handy guideline, it won’t always work. For example, you might have to change the 70% to 85% when it’s a hot market. You’ll also want to be conservative with your renovation amount and allow yourself a little cushioning in your estimates if something goes wrong. <\/p>\n\n\n\n

Again, this is just a guideline and may not always work. You’ll need to take the time to look at the current market and other properties to figure out your calculations to determine if it’s worth it. Just be realistic with your estimates and plan for the worst to avoid any potential financial pain. <\/p>\n\n\n\n

TL;DR<\/strong><\/h2>\n\n\n\n

Buying a home may seem complex, but if you hire the right professionals to support you throughout the process, take your finances seriously, and avoid pushing yourself to your limit, it can make things feel less overwhelming. <\/p>\n\n\n\n

If you ask yourself the following questions, making an offer on a home can be a much more straightforward decision.<\/p>\n\n\n\n

  • What type of real estate market are we in?<\/li>
  • How long has this home been on the market?<\/li>
  • What have similar homes in the area sold for?<\/li>
  • How much can I actually<\/em> afford?<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"

    Do you go high, low, or stick to list price?<\/p>\n","protected":false},"author":95,"featured_media":20769,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47],"tags":[],"guide":[],"class_list":["post-20768","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20768","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/95"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=20768"}],"version-history":[{"count":3,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20768\/revisions"}],"predecessor-version":[{"id":24558,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20768\/revisions\/24558"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/20769"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=20768"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=20768"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=20768"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=20768"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}