How to prepare for a mortgage in 4 steps?

Get to know the real estate market

Although it may seem obvious, many people completely ignore this step. They live by the stories of an uncle who bought his apartment ten years ago and brags about his price per square meter at every family gathering. They are convinced that prices couldn't have risen that much, a belief that hits a wall when they realize their creditworthiness is only enough to make a competitive offer on a chicken coop.

Spend a few evenings tracking listings in the area you're eyeing. View a few apartments and confront your desires with reality. We buy with our eyes and our imagination. Instead of wondering where you'll put your desk, sofa, and hang your pictures, approach the matter more pragmatically.

• How big of an apartment do you need? Not just for right now, but for the next two or three years as well. Working from home might be here to stay, and you'll need a separate room instead of hunching over on the sofa.
• Is the floor plan functional? Or does it only look good on paper? A well-organized 50 square meters can feel significantly larger than 70 square meters with a poor layout.
• Is everything you need nearby? Proximity to schools and kindergartens is a plus for families with children, but not necessarily for singles by choice.
• Is there anything problematic in the area? A noisy factory, a major transit hub, a sewage treatment plant, etc.
• How much light does the property get? A lack of natural light during the day will have a negative impact on you.
• What is the view from the apartment like? To the street, a green area, or perhaps the neighboring building and smoking neighbors?
• What is the condition of the insulation? Poor insulation means you'll need to install air conditioning for the summer and use heavy heating in the winter—in both cases, this will increase your average annual maintenance costs.

The smallest details will grow into giant problems over the years. Having a 30-year mortgage is stressful enough; you should at least enjoy living in your home.

Having a clear understanding of your needs, rather than getting swept up in the excitement of buying your first home, will allow you not only to determine the budget needed for the property itself but also to tailor it to your own requirements.

Also, consider whether you really want to buy on the primary market. Aside from the fear of a developer going bankrupt, there is the wait for construction and the handover of the property, which involves rental costs for at least several months. New is nice, but all your neighbors are also planning to move in, which means renovations. Probably for the next 2 years.

A mortgage taken out for the wrong property will drive you crazy.

Prepare your down payment

Before choosing a property, you should already have your down payment saved up. Ideally, this should be at least 20% — with this amount, you have access to offers from all banks. Some banks accept a minimum down payment of 10%, but this limits your choice to offers that may not be the most attractive in terms of the total repayment amount.

The government is working on establishing mortgages without a down payment (under certain circumstances), but in my opinion, this is quite risky. Think about it—if you haven't been able to save a specific amount for a down payment each month so far, what makes you think you'll be able to pay your mortgage installment every month? Will the mere prospect of the obligation be enough?

Check your credit history

The sooner you do this, the better. It gives you more time to react. A commonly repeated myth is that you need to have a credit history before getting a mortgage—that's nonsense. There is no such requirement. Although having one is not entirely irrelevant.

• Bad credit history — This has the biggest impact on a mortgage. It can completely deprive you of the ability to borrow funds from a bank. If you have numerous, large, and long-standing delays in payments on previous obligations, your application will be rejected.
• Good credit history — It has no impact on your maximum borrowing capacity or loan terms. It may only determine whether you get the loan at all, provided the decision is hanging in the balance.
• No credit history — A neutral situation. It does not rule out getting a mortgage.

Check your borrowing capacity

Since you are planning to take out a mortgage for a specific amount, the bank must verify whether you are capable of diligently repaying it over the next twenty or thirty years. That is exactly what borrowing capacity is for.

People usually think of it in terms of "I have a borrowing capacity of one million zlotys." That is not entirely true. Capacity is not calculated as an absolute figure because many factors influence it, including the loan term. It is possible that you can borrow that million over thirty years, but you would only get eight hundred thousand over twenty. Why?

Borrowing capacity is the amount you, as a borrower, can afford to put toward the monthly installment of a new loan. Therefore, it is more realistic to say, "my borrowing capacity is three thousand zlotys per month."

Your monthly living expenses and the sum of your current financial obligations are subtracted from your net income. This result shows the maximum installment you can afford to pay on a loan, which is still limited in certain ways. However, I will expand on the entire mechanism of borrowing capacity, as well as other topics from this material, in subsequent lessons where I will dedicate time to each issue individually.