So, you’re ready to leave apartment life behind and purchase your first condo? Fabulous news! Making the decision to transition from renting to full-fledged ownership is a huge, exciting leap, especially if you’ve been renting for years. As you skim over this, you’re probably already browsing through listings, drooling over cool condo amenities, and planning the guest list for your condo-warming party. But… no so fast there, friend. Before you can really get into seriously shopping around for the condo of your dreams (and that you can realistically afford), there’s a few things you need to check off your to-do list first. Eight things, to be exact:
1. Check Your Credit — Before any big purchase, whether it’s a shiny new car or a condo, it’s essential that you check up on your credit. After all, your credit score and your credit history are two huge details that lending companies consider when determining if you’re a trustworthy borrower and what interest rate to charge you. You don’t want to be surprised by a bad credit report when you go to apply for a mortgage, do you? So, before you start shopping around for condos, get a copy of your Annual Credit Report. You’re allowed a free copy of your credit report from each credit reporting company (TransUnion, Equifax and Experian) every 12 months. Review the report carefully and request corrections if you find mistakes.
- Credit Karma is another easy-to-use and reliable site for your credit scores.
2. Estimate What You Can Afford — Before you can begin scouting out potential places to buy, you’ve got to know how much you can afford to spend. So, before you even begin browsing (it’s easier to not be let down if you only start looking once you know your price range) go ahead and estimate what you can afford to pay for a condo on your salary.
3. Start Saving for the Down Payment & Closing Costs — Ideally, this is something you should have already been doing, especially if you’re going to start browsing the market soon. To figure out how much you need to save up to cover the down payment and your closing costs, check out these two great blogs:
4. Pay Down Your Debts — This is another biggie that you should already be focused on. Here’s why: You’re overall debt is taken into consideration and weighed against your income when you apply for a loan. If you’re debt-to-income ratio is too high for you to be ably to comfortably pay your condo mortgage each month, it’s likely you’ll be turned down for a loan. So, to vastly improve your chances of obtaining a quick and easy mortgage approval, pay down as much debt as you can before you ever fill out the first loan application.
5. Talk to Your Bank — Once you’ve checked your credit, saved up a good sum, and paid down a nice portion of your existing debt, it’s time to get prequalified for a mortgage. (You can apply online, but we personally recommend talking to a banker in person. We believe it’s always a smart idea because they can help direct you on what type of mortgage will ultimate work best for you and they can help you develop a financial plan that will make owning your first condo easier to manage.) The amount you are prequalified for lets you know how much they’re likely to let you borrow to purchase your new condo, but prequalification isn’t the same as preapproval or approval, so don’t confuse these terms.
Prequalification vs. Preapproval
Prequalification is a lender’s estimate of how much you could be eligible to borrow based on information you supply. Prequalification does not mean you will get the loan. Prequalifications are usually free. Preapproval usually means that the lender is ready to make you a mortgage loan based on the information and documentation you provided at the time you requested a preapproval. The preapproval will say how long it is valid for and may contain some other conditions for you to get the loan. Your lender may not require that you pay any fees except the cost of a credit report at this time.
We also recommend checking out this handy dandy article from Realtor.com that explains the difference.
If you’re turned down, talk to your banker about what you can do to guarantee approval in the future. Usually, it’s means getting your credit score up, saving up more money, paying down even more of your existing debt, or a combination of these. Sometimes, applying for a smaller loan can do just the trick.
6. Research Neighborhoods — To make your condo search pool smaller and more tailored to your needs, it’s essential that you research neighborhoods and narrow down your search areas to those that you really like and that work for your lifestyle. Not sure what you should be looking for? No worries — this blog explains what to keep an eye out when researching the neighborhoods where you might like to buy.
7. Create a (Realistic) Wish List — Compared to the other must-dos on this list, this task is a fun one. It’s simple, too. Just grab a piece of paper (or your favorite gadget) and jot down what you’d like your new condo to have, such as number of bedrooms, on-site amenities, preferred neighborhoods, etc.! Our only advice in this department is to keep your list realistic manageable — there’s no reason to include items on your wish list that you absolutely cannot afford or that you cannot find in the city/neighborhood you’ve chosen. Having a “must-have” and “would like to have” lists on hand will make your search for the perfect new condo a lot easier on you and your broker,if you hire one.
8. Hire a Broker/Realtor — You don’t have to hire a buyer’s broker or a real estate agent to find or buy a condo, but in our experiences, it’s a lot better if you do have one by your side during the searching and purchasing process. Why exactly? This blog explains the pros of cons of hiring one. Oh, and if you do decide that enlisting the services of a realtor is for you, check out our guide to hiring a broker who is right for you.
Once you check off all these things on your pre-condo shopping list, it’s then time to start searching for a condo that you love. So, until next time — happy condo shopping!