Tips about buying new apartments:2. How to deal with the banks and their hidden costs

Part 1

(to read part 2, click here)

Investment in a new apartment is one of the most important moments in the economic life of each and every one of us. Statistics say that we usually buy 1 – 3 dwellings during our life, so every mistake counts. When the market was up, the problem for the buyers was to find the right property at the right price. Financing facilities were easy to access, the interest rates were very low and from rich people up to middle class, almost everyone had 2 – 3 friends from the banking sector, proposing to him to take the loan from their bank. This was just 18 months ago, but it is an "old history" for today's Romania. As the market has changed 100%, banks have become very reluctant, forcing many buyers to make the mistake and buy properties with very expensive financial tools. How should you avoid a mistake which can hurt your financial status for the decades to come?

1. Don't panic! Carefully identify your priorities and act with wisdom and patience

Most people were not used to buy new properties. When the market opened for them, they lived

a situation with prices changing over the night, arrogant owners and Real Estate brokers and the media predicting that the prices will continue rising, so they had to run! This is the main reason I hear today some of my friends having acquired a bad property with price which is more than double than the current market's levels.

You don't have to panic. There is no reason to buy the first property you see, using the first loan that someone promises to you. Sit down and carefully identify your needs, drawing your own budget. Create a list with 5 banks to visit and ask them information. Also another list with 5 "ideal" apartments you would like to buy, within this budget. Noone will… steal the good opportunity you think you found, noone can blackmail you and force you to accept his offer.

2. How much should be the interest?

In case you are eligible to apply for "Prima Casa", go for it, but keeping in mind that this procedure will take some time. If not, avoid any loan offered to you with an interest higher than 6% – 6,5%. It will be very difficult for you to pay back a loan with 7,5% or more, needless to say that 10% is almost "suicide". A normal interest rate is about 4% – 5%, which was even lower some years ago.

One exception: If you really find a property which is a bargain, then it worths the risk for a higher interest rate too.

3. Fixed interest rate or volatile one?

Euribor is expected to rise by 1%, maximum by autumn next year. In the same time, if you believe that the loan policies in Romania will ease in the near future, you can take a loan without fixed interest and shift to a fixed one in the following 2 – 3 years. This is also subject to your investor's profile, but keep in mind that a good fixed interest should not be over 5 – 5,5%.

4. For how many years?

I know many people who choose smaller periods of repayment, 15 – 20 years instead of 25 – 30. The experience in more mature markets (Greece, England and the rest of Western Europe) showed that the higher is your monthly instalment, the bigger is your possibility to fail paying it.

I would go for the maximum period, so as to guarantee the stability of my family. If you have more money available, invest it in something else, or simply pay back more instalments, if you want to feel relieved.

Theoretically speaking, this strategy will cost you more. In reality it will provide you a healthier life, with less stress. Sometimes even a better quality of life, as you will have some more available resources to use for your daily activities.

5. How much should be the monthly instalment?

All serious people, all around the world say that this instalment should not exceed the 30 – 35% of your monthly income. If you have more loans or insurances, this rule applies to the total sum. In case you realize that a new loan would cost you 50 – 60% of your income (or more), then instead of blaming the others, you should simply avoid the risk and not to buy an apartment. If you will buy it, you will have 51% (or more) chances to lose it over the years to come.

Tomorrow:

– Insure yourself, if you can.

– Search for a bank which will let you negotiate the exchange rate

– "Sale Price" is not always the price you finally pay to the bank

– Is a credit broker needed?