Buying an apartment on credit - my own example. Part 1.

In today's post, I will present how the process of buying my first apartment on credit looked. I was looking for an apartment in Wrocław, so some of my experiences, advice, and reflections may not apply to your locality, but I believe that most things can be done in a similar way as I did. I invite you to read on.

Buying an apartment on credit, first step = decision

I have been thinking about buying an apartment for several years. However, now that I plan to completely end my employment after the project I am currently working on, I considered this the best moment to obtain a loan for my first apartment. Why? Because I heard that having a permanent employment contract (which I have) makes it easier to get a loan than, for example, having your own business (I will check if that’s really the case and let you know). So the decision is made - I am buying an apartment.

Buying an apartment on credit, second step = how much do I need to borrow?

The next logical step I considered was to get an idea of the prices of apartments that would meet my criteria. The main advantages of the apartment I will be looking for are:

• distance from the Market in Wrocław - who doesn’t like to take a stroll through the beautiful Wrocław market from time to time, watch the gnomes (my favorites are Prakrasnal, Krasnal Miodek, and Krasnale Syzyfki :) ) or meet the Lantern Keeper on Ostrów Tumski.

• New apartment - because everyone prefers to have a new one if they can afford it.

• Area about 50m2 - it can have a kitchenette combined with a living room and at least one room that I will arrange as a bedroom-office, although ideally, it would be good to have 2 rooms, which would allow me to separate these two functions.

The first better website of a developer where you can check apartment prices is www. Archicomu:www.archicom.pl

What surprised me - this is not the standard, with most developers you have to send inquiries about specific apartments and only then can you get an offer.

After a quick analysis of apartments on this site (I analyzed the Browary Wrocławskie estate due to its acceptable distance from the Market) I concluded that I need about 700,000 PLN. A lot? A little? At this moment, I’m not analyzing it - I just calmly accepted it as a fact.

Buying an apartment on credit, third step = how much can I borrow?

I know how much money I need. Now I need to answer the questions:

- Can I borrow that much?

- Furthermore, if I can, will the monthly installment not be too high?

There are several ways to determine creditworthiness - that is, the maximum amount I can borrow:

• online calculators

• banks

• credit/financial advisors

Creditworthiness - online calculator

First, I used an online calculator. I used the calculator from this site:

https://www.totalmoney.pl/kredyty_hipoteczne/620000/35/800`

I entered the loan amount, down payment, loan term, and type of interest rate (fixed or variable). My assumptions looked like the picture below:

The results for these assumptions were as follows:

So theoretically, according to the calculator, I could afford a loan of about 700,000 PLN. However, it’s evident that the monthly installment is very high, not much lower than what I earn. To estimate whether I could afford such a loan, I do a short analysis of my household budget, listing average earnings over a period of 6 months and average expenses over 6 months.

Regarding earnings, I simply sum up the inflows from my employer and divide by 6. The average earnings are 7,400 PLN. This, assuming the lowest installment from the calculator of 4,730 PLN (which will probably be too optimistic an assumption...) leaves me with 2,670 PLN for living.

My average expenses were quite easy to estimate because I keep a monthly record of expenses (I use the Expense Manager app for this).

After summing up all monthly expenses, I found that the average monthly cash demand is about 3,400 PLN. So:

3,400 PLN > 2,670 PLN, which means I cannot afford such a high loan.

These simple mathematical conditions already gave me the first signal that obtaining the initially assumed loan amount might not be so easy...

Creditworthiness - banks and credit advisor

Next, I sent inquiries to 2 banks where I currently hold products.

I also have a query for the advisor. PKO BP contacted me within half an hour (even though it was Sunday 🤯). The next day, representatives from the second bank (mbank) and the advisory firm also reached out to me early in the morning. For a while, I felt that I was earning quite well - at this point, it's nearly 3,000 net PLN above the national average. But I stopped deluding myself when my creditworthiness was calculated during the first conversation (with a representative from PKO BP), who quickly calculated that I could afford a loan of as much as... 380,000 PLN, which is just a little over half of what I needed. Mbank calculated the same creditworthiness, but their approach to the client was, in my opinion, much better, as they also recalculated my capacity after paying off my already small student loan and considering the upcoming changes from the KNF. I will write about this in the next entries of this series.

I have been waiting for a credit advisor's assessment for a week - I hope that during this time they have come up with a solution that will make my creditworthiness extraordinarily high 🤪.

Buying an apartment with a loan - summary of the first part

You already know what first steps I took to buy my dream (I hope it will be 😁) apartment:

- you start with a decision

- you define your basic requirements (size, location, etc.)

- you initially search how much you need to pay for this apartment

- you determine your creditworthiness

If you don't have an initial credit capacity set, then you are in my current situation where you either give up or, like me, you will try to find ways to buy that dream apartment, and the upcoming entries will discuss those strategies and possible solutions. We are in touch!

PJ

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