Tips about buying new apartments:2. How to deal with the banks and their hidden costs | Ilias Papageorgiadis’ blog for Real Estate in Romania (and not only)

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

Tuesday, February 23rd, 2010

(part 2, to read part 1 please press 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?

6. Insure yourself, if you can.

Nowadays there are insurance companies which insure you also for the unlikely scenario of losing your job, or having serious health problems. The costs are not really high, if you are under 50 years old. If you can do this, you will be much safer in a bad moment of life, which happens to 20 - 30% of all buyers of new apartments.

7. Some money in the bank can save you as well…

Following the strategy of many major investors, you should calculate the annual cost of your loan’s instalments. If this is 400 euro / month, 4.800 euro per year, you should add one more month and the total sums at 5.200 euro. This amount should better be deposited in a bank account, ideally in the same bank where you have your loan. This should be money that you will never use and you will forget, adding on it just the deposit’s interest.

Why to do this? In case you can not pay the instalment by yourself (no matter what the reason is), this “pillow” will give you one year of safety, before you will start having problems with your bank (and you will be upset because “they don’t understand you”).

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

“I signed with the developer for 58.000 euro. They invoiced me with 4,21 ron / 1 euro. When the bank was supposed to give me the loan so as to pay this developer, they gave me the approved amount with 4,03 ron / 1 euro, even if the fixing price of BNR was about 4,11 ron / 1 euro at that day. I asked them to negotiate with the dealing room for a better price, but they said that this is not possible for this kind of loans. This means that I had to pay by myself an additional amount of 10.440 ron, almost 2.540 euro. So the price rose by 2.540 euro, 4,38% from what I agreed!”. (true story sent to me by one of my readers, but I know many other similar ones too).

There are many banks which follow this policy and a minority between them which does not. Search for the bank which will give you the advantage to negotiate with them, directly with their dealing room, for the price you will exchange.

In the same time, try to explain to the developer that he has to invoice you with the price of BNR, if not the deal he proposes is not exactly “honest”.

If a bank does this today, they will also “overcharge” you for the years to come. You should agree with them the norm based on which they will invoice your instalment monthly.

9. “Sale Price” is not always the price you finally pay to the bank

Starting with exchange costs to several other fees a bank is charging, the final cost is never the one we estimate at the beginning. This is why one should always calculate an additional 5 - 10% cost on the budget he will create. Some of these expenses can be avoided, while others are necessary. But it is better to lose 300 - 1.000 euro and correct a mistake (for example to choose an expensive bank) than to continue because you already “lost” this money and like this you will lose much more in the near future.

You should definitely read carefully all the contracts you are supposed to sign. Don’t see it as an “obligation”, but as the best investment of your time.

10. Negotiate the penalty for the early payment of your loan

Usually we approach our life only using the “glasses” of “today and tomorrow”. But things might change over the following years. Except the unlikely scenario of going down, we work and try hard so as to go up too. So, we should be ready for the positive scenario, with our financial status turning out to be better than we planned. This is why it is important to agree with the bank for a “smoother” penalty in case we want to prepay the whole amount of the loan anytime in the near future.

If you consider that you will not succeed to receive the low penalty you wish, try to use it as a negotiation tool, while you negotiate everything else with your bank. “Ok, I will pay this high penalty, but I want THIS instead”.

10 + 1. Is a credit broker needed?

Yes and no.

Yes, if you don’t have much free time, you know someone you can trust and you will assign him to assist you in your relations with the bank. Very important: He is supposed to bring added value to your interests. This is something that should be visible to your eyes.

No, if you have plenty of time to invest, so as to read and understand everything, plus if you have some basic knowledge of all these.

I would personally tell you “yes”, but keep in mind that (as it happens with all other professions) almost half of these guys have absolutely nothing to offer you, except a “sweet” contract for their fees. So, this is a “yes, but with your eyes open”, as it counts for everything else too.

On Monday, 29.02.2010

Tips about buying new apartments:

3. What should be the criteria to choose a new home?