The 11 Steps to Buying an Apartment: What First-Time Apartment Buyers Wish They Had Known — Hipster Real Estate (2024)

More and more Millennials are choosing to stay in cities rather than purchase in the suburbs. But purchasing an apartment comes with a few more steps than a house.

So you know exactly what you’re about to get into, read through this how-to guide before you start.

Step One: Check Your Credit Score

The worst mistake you can ever make in real estate is to assume. Don’t assume that banks will loan you a certain amount of money because you may not for as much as you want if you have a bad credit score.

There are three credit bureaus that keep track of consumer financial data: TransUnion, Equifax and Experian. These three credit bureaus each compile a credit report, which is a history of your debt, on on-time payments, and credit utilization.

FICO, in turn, takes the information from your reports and turns them into scores. The higher your score, the better. Scores can range anywhere from 300-850. Because you have three credit reports, you also have three credit scores.

Mortgage lenders typically choose the middle score of all three scores, not the average. So if you have a 680 from Experian, a 700 from TransUnion, and a 720 from Equifax, your lender would use the 700 from TransUnion score when determining your interest rate.

Note: If you’re applying for a mortgage with your spouse, mortgage lenders often take the middle credit score of the person with the lowest credit score to determine a rate. For this reason, it may be to your advantage to only have the buyer with the highest score on the loan application. You can always add your spouse to the title after closing.

Check Your Reports for Errors

Credit Bureaus make mistakes. In fact, they make mistakes all the time. Comb through each report and make sure the information in them is accurate. If they’re not, you’ll want to begin the dispute process.

You can get a free copy of your credit report for free once a year at Annual Credit Report.

Do this as soon as possible. A faulty credit report could cost you thousands of dollars in interest.

Step Two: Calculate Mortgage Payments

Mortgage calculators do exactly what you think: they calculate how much a monthly mortgage payment would be based on the loan amount and interest rate. If you’ve never used one, we’ve written up a quick how-to guide to get you started.

It is always a good idea to have a ballpark number of what you can afford before you start dreaming and scheming. You may realize you can’t afford what you thought you could, or you may realize the opposite. Knowing your numbers will also help you determine where you should focus your search.

Step Three: Calculate Your DTI

DTI stands for debt-to-income. It’s an analysis of how much money are you bringing in compared versus how much are you sending back out?

‘Debt’ only includes financial obligations you have to lenders or agencies who have loaned you money in the past. Internet, phone, groceries, gas and things of this nature don’t count. When calculating your DTI, only include things like:

• Credit Cards

• Student Loans

• Auto Loans

• Personal Loans

• Child Support

• Alimony

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To determine your DTI, add up your minimum monthly payment for each of the items listed above and divide the sum by your gross monthly income (the amount you make before taxes). Multiply the quotient by 100, and the resulting number is your DTI ratio.

Why is DTI important?

Lenders don’t like to see DTIs higher than 43% and typically will not loan an amount that would push a DTI higher than this.

If you have a high DTI, it might be in your best interest to first pay off what debts you can. Doing so may increase the amount banks will give you.

Step Four: Get Pre-Approved

People often jumble up pre-approved and pre-qualified. They’re not the same.

Pre-qualification is just a hypothetical yes. It’s not a guarantee that a bank will lend to you. When you get pre-qualified, the lender simply takes the information you provide but does not actually take a hard look at your financials to verify if any of the information is correct.

Lesson: Don’t go apartment hunting with only a pre-qualification!

Pre-approval is the opposite. The lender has actually taken a hard look at your financials and has deemed you worthy of a particular loan amount.

You can rate shop and compare lenders for about a month without hurting your credit score each time (note: hard inquiries hurt your credit score by about five points). Find the lender with the best rate before you go shopping.

Step Five: Find the Right Realtor

Don’t just accept the first realtor you find. You want someone that truly knows what he or she is doing. At the very least, interview them. Questions you should consider asking include:

• How many clients do you currently have?

• How many houses have you helped clients sell or buy?

• Can you provide recent references?

• Do you work with a company?

• Do you have another job?

• How long have you been a real estate agent?

• Do you work by yourself or with a team?

• When are you available to show apartments?

• What’s your response time?

• What are your fees?

• What can you tell me about (select purchase area)?

Again, don’t take the first person you meet. That’s a recipe for disaster.

For more information, read our article on how to find the perfect realtor.

Step Six: Go Apartment Hunting

Find apartments that excite you (and that you can afford) and schedule walkthroughs with your realtor. Obviously never put an offer on something you haven’t seen.

When you do walkthroughs, don’t just look at the apartment itself. Spend time walking the neighborhood and check out each floor of the apartment building itself. Also consider going back at different times of day. Do your due-diligence to make sure you would be absolutely comfortable and happy at your future home.

A word on Co-ops Vs. Condos

These two aren’t the same. There are some key differences that could affect both how you buy and sell the property.

Condo: When you buy a condo you are buying the property outright; however, there will be monthly fees you’ll have to pay (referred to as HOA fees), and you will also have separate property taxes from other units in the building. If and when you choose to sell, you can sell the condo on the open market.

Co-Ops: When you buy a Co-Op you’re essentially buying a portion of stock in the building, which entitles you to own and live in a specific residence. You can sell your unit on the open market, but other shareholders in the building can deny potential buyers the right to purchase the unit for any reason whatsoever. As with condos, you will have monthly fees, which are broken up to 50% maintenance and 50% property tax. At first glance, the fees might appear higher than condos, but will likely be the same. This is because your monthly fees include both taxes and maintenance, whereas with condos they’re broken up.

Step Seven: Calculate Apartment Ownership Costs and Read Through the Rules

No matter what you look at, there are going to be monthly fees. Ask what they are and be sure to add those costs to your monthly expenditures.

Next, take a look at any rules the building and HOA has in place that might limit what you can and cannot do. It’s not your agents job to do this because doing so would be akin to practicing law, which is illegal unless they’re a licensed lawyer. Instead, it is part of the buyer’s due diligence.

Therefore, read through all of the following before making an offer:

• HOA Bylaws

• CC&Rs

• HOA Rules and Regulations

Note: Lenders consider HOA fees to be a part of your monthly payment, so it will affect your DTI, which can’t go above 43%.

Step Eight: Make Your Offer, But Be Prepared for a Counter-Offer

The most common mistake new homebuyer’s make is they negotiate too hard, and try to get the home of their dreams for as little as possible. If you’re going to negotiate, we suggest only negotiating on one of the following:

• Purchase Price

• Closing Costs

Ask the seller to lower the sale’s price and pay your closing costs and you’ll likely get a flat out “no” without any counter. Of course, there are always exceptions, and it may depend on how long the apartment has sat.

Therefore, decide what is most important to you: a reduction in your monthly mortgage payments or cash. If it will be a struggle to make the minimum down payment, you should probably ask for closing costs.

Question: What is an acceptable amount to ask the seller to come down?

There’s nothing written in stone, but the norm for sellers to come off an asking price is usually 5-10%. Go over that amount, and you’ll probably get some push back.

Yes, there are tales of buyers getting sellers to come an extraordinary amount off their asking price, but it’s not the norm, which is why you need a savvy realtor who has your best interests. A good realtor will take a look at recent comps and give you a good starting offer. If they don’t do this for you, look at any documents you signed to see when you can legally break away. It may be time to find someone else.

Should You Ever Pay More Than the Asking Price?

Paying more than the asking price often happens in certain cities like Chicago and New York where demand is always high and inventory is always low.

The main thing you and your realtor will have to decide is whether or not you could get your money back. If you never plan on moving again, it’s not an issue, but if it’s a strong possibility, you never want to pay more than you could recoup when you sell.

Note: If you know you’re competing with another buyer, you don’t have to necessarily go way over. It may only take $500 over the asking price to give your offer an advantage.

Step Nine: Have an Independent Building Inspection As Well As a Separate Unit Inspection

Your lender won’t let you NOT do this, so just know it’s coming.

This step is to determine whether the building is structurally OK. Was it constructed to code? Does it need any future maintenance? If it does, does the HOA have the funds to cover those costs? If not, you’ll need to figure out how much the HOA fees are going to go up in the near future.

Your unit inspection should be straightforward. If you can manage it, try to be there during the actual inspection. This way you can ask questions to determine how severe any of the issues actually are. On paper, inspections can seem more severe than they actually are.

Step Ten: Renegotiate

Thought you were done with negotiations? Maybe, but not likely. It depends on what the inspections brought up.

You can ask for the seller to make repairs to the unit, but it’s up to them whether or not they will. When they agreed to your initial offer, they may have agreed to do repairs up to a certain amount. Exceed this amount and they may not be willing to do any of the work.

You can ask the seller to either:

• Option 1: Make all necessary repairs

• Option 2: Make select repairs

• Option 3: Make all necessary repairs and drop the purchase price

• Option 4: Make select repairs and drop the purchase price

• Option 5: Drop purchase price

(Note: You can also factor in closing costs for even more options.)

Options 2, 4, and 5 are your best bets, but it depends on the state of the property and how badly the seller wants to sell. However, it’s often in their best interest to work with you because the property listing will say whether or not a deal fell through. Other buyers will likely figure out why, and will adjust their offer accordingly, which could result in an even greater loss of money for them.

Step Eleven: Final Walkthrough and Close

Always do your final walkthrough. The buyer might accidentally break something moving out or take something with them that was negotiated with the purchase agreement. It’s happened many times.

Bring a cashier’s check for the down payment and closing costs (no, you can’t simply write a personal check). Expect closing to take about 20-30 minutes.

Once all of the paperwork is done, your realtor will give you the key to your new home!

Final Thoughts

Buying an apartment will likely take you 2-3 months. As you can see, there are a lot of steps involved if you want to be a responsible buyer. Don’t rush anything because apartments come and go every day. If you miss out on the perfect unit, you’ll probably only have to wait a few days before something else comes along that equally excites you.