If you are planning to buy your first apartment, it’s definitely going to be an exciting step. After living in a rented property or your parents’ home for years, you will finally move into a place that you can call your own. This anticipation may lead you to go headfirst into the exciting world of homeownership, but keep in mind, the process of buying an apartment, or any type of property for that matter, is complex and sometimes, intimidating. You need to do your due diligence in order to avoid the most common pitfalls.
Here are 7 things you should know before you start hunting for your first apartment:
Know Your Budget And Requirements
There is no point wasting time on checking out properties that you can’t afford. Keep in mind, you should buy a property that you can afford now, not based on unrealistic assumptions of your income in the near future.
Make A List Of Must-Haves
Determine how much space you will need. You should have a fair idea of the minimum number of bedrooms and bathrooms your ideal apartment should have. Find out if the apartment you are zeroing in on is in close proximity to work and other facilities such as schools, shops, parks, and public transport.
Check Your Credit Score
If you are like most homebuyers, you will take out a mortgage to finance your apartment deal. So the first thing you should check is your credit score. It will determine:
- If your loan application will be approved by a traditional lender
- How much loan you will be approved in ratio to your income
- The amount of down payment you will need to pay
- Interest rate
- The amount of processing fee
- And, if you will have to pay private mortgage insurance (PMI) in addition to monthly installments.
The higher the credit score, the brighter are the chances of getting a lender to offer you the best loan terms.
Different types of loans have different minimum credit score requirements. If you are applying for a conventional loan backed by Fannie Mae or Freddie Mac, you will need a minimum credit score of 620, but you can get an FHA loan if your credit score is a minimum of 580.
Arrange For Down Payment
If your credit is less than stellar, then your lender may ask for a large down payment up front, perhaps 20 percent. You can pay a lower down payment for FHA loans, but you will need to pay PMI for loans if it’s less than 20 percent. If you have trouble arranging for a down payment, here are three options you have:
- Assume an existing mortgage. It means that the apartment you are buying has an existing mortgage and you will assume responsibilities for all outstanding payments without necessarily making a down payment.
- A lease-to-own arrangement is also a great option. Under this arrangement, you will lease the apartment from the seller and purchase it after a set period of time.
- If the seller doesn’t have an outstanding mortgage, you can negotiate a seller financing arrangement. Under this agreement, you will pay monthly installments to the seller, instead of a conventional bank. You can negotiate the terms of monthly payments and the amount of down payment.
Before choosing any of these options, you should know that these are not widely accepted, so you will first need to find a seller who is willing to take unconventional arrangements such as lease-to-own or seller-financing.
Know Homeowners’ Association (HOA) Rules
Apartment buildings are governed by rules and regulations set by HOA, an association of apartment owners. Before buying an apartment, make sure these regulations fit in with your lifestyle. You may want to keep a pet, but HOA may not allow this.
Facilities And Costs
You will have to pay HOA fee for the maintenance of common areas in the building. Find out how much it is and determine if you will be able to afford it. Other things you should check out include parking arrangements, waste disposal system, noise level, the type of occupancy in other apartments (whether apartments in the building are occupied by owners or renters), and common areas for recreational facilities.
Work With A Professional
If you are buying your first apartment, you most likely don’t have any experience with real estate transactions. You should consider hiring a real estate agent to be on your side and get you through the complex process.
These are some common and essential items on your checklist, but make sure to put together your own list of requirements before starting to hunt for your first apartment. Do your homework and get professional advice before putting in an offer.