How to buy an apartment

Renting vs buying: Which is better?

many reasons why doing so can be great for your financial and life planning. On the one hand, the money you typically pay in rent will instead build equity in your own property. You’ll also have more flexibility when it comes to making renovations. And should you decide to live in your apartment for long enough, it could create a profit for you in the future when you eventually decide to move on.

How much money should you have before buying an apartment?

There’s no set amount of money you need to buy an apartment – it all comes down to your own circumstances.

Apartment prices can change based on size, location, and age, so you will need to work out your budget and ambitions before preparing to take out a mortgage.

How much can you afford?

Instead of meeting rental payments, your biggest financial cost as an owner will be your mortgage. So, for anyone considering becoming an owner, the first question to ask is how much you can afford.

What you can afford usually comes down to your debt-to-income ratio, which calculates how much you owe every month against how much you earn. The lower your ratio is, the more lenders will be willing to offer you. But if your ratio exceeds around 43 percent, this indicates to a lender that nearly half of your income is being spent on outstanding debts, and that you may be less reliable as a borrower.

To calculate your debt-to-income ratio, add up all of your monthly debt payments and then divide this amount by your monthly income. The amount, as a percentage, is your ratio, and the lower it is, the more likely a lender is to lend to you.

Remember that your mortgage payments are just one part of the equation. You should also pay close attention to the interest rate of your mortgage and ask yourself how big of a down payment you would like to make on your apartment.

How do you buy into a co-op?

There are different ways of owning an apartment. While renting an apartment, you’ll be responsible for a single unit and will share the running and maintenance costs of shared spaces with other people in your building. Buying into a cooperative works differently.

To buy into a co-op, you will buy shares in the organization that owns your apartment complex and will be responsible for the upkeep, renovations, and improvements that need to be made to the building. In other words, apartment owners take shared financial responsibility for the entire building.

If you would like to buy into a co-op, you may be asked by mortgage lenders to undertake extra verification procedures. Sometimes, lenders can be reluctant to lend to you if you’ll be buying shares in a co-op as they won’t be able to repossess your home if you can’t keep up with your monthly payments. Where lenders are willing to offer you a mortgage, they may want to know more about the financial health of the cooperative organization you’ll be buying into.

What is a leasehold?

Buying a leasehold is another way of owning an apartment, albeit it is rare outside of the states of New York, Florida, and Hawaii. With a lease purchase, you effectively become the owner of an apartment for a set period, without owning the land on which it’s built.

Leaseholds can last anywhere from 40 years to 120 years, and at the end of your lease, ownership will return to the owner of the property – called the freeholder. To pay for your property, you’ll pay ground rent, but this doesn’t mean that you are simply renting the apartment. You have the freedom to renovate as you see fit and don’t need to ask permission to carry them out from a landlord.

While leasing does offer a flexible means of owning property, you won’t be able to profit financially from any renovations you make, as only the freeholder can sell the rights. You can however work out an agreement to reduce ground rent depending on the type of improvement made.

Is buying right for you?

If you’ve decided to buy an apartment, there are a few different ways to do it. In the end, whether you’re better off buying or renting is up to you and your financial circumstances. But with a few different ways of buying or leasing a property, you can purchase an apartment that suits your circumstances.