First-time buyer on the Polish property market? You’ll need a home loan? I described, step by step, what the whole process looks like. If you want to buy an apartment from a developer, this article will help you to grasp the subject and avoid pitfalls.
Straight away I would like to recommend you a related article on purchasing real estate on the secondary market: Buying an apartment on mortgage in 5 steps (secondary market)
1. Check your creditworthiness
Regardless of whether you are buying a property on the primary or secondary market, you need to know what apartment you can afford. Visit a mortgage broker or go to banks. Why you should do it early enough?
Sometimes you have to prepare yourself for a credit. Your creditworthiness may be too low in relation to your expectations (or you don’t have it at all). Creditworthiness can be improved in various ways, but in some cases it can take up to several months. That’s why do it as soon as you have the idea of having a flat and mortgage loan in your mind. Hold on, but what exactly creditworthiness means? Talking straight – it means how much banks will borrow you (vary between banks).
From a broker or in a bank, you will also find out the most important details – what will be the loan instalments, interest rate, commissions and other fees and what will be the costs related to the transaction. This will give you time to prepare yourself properly. If you already have a credit history in Poland, it is advisable to download the BIK (Credit Information Bureau) report and check what your credit scoring is.
And finally, you need to know what kind of contribution (down payment) you will need, because it will be the largest amount of cash you will have to put on the table. I’ve made detailed calculation of all initial expenses conected to flat purchase and mortgage loan in this post.
2. Find your dream flat
You will certainly start with the Internet. The major property advertising websites are e. g. otodom. pl, gratka. pl, tabelaofert. pl. There are also services dedicated only to the primary market, e. g. rynekpierwotny.pl, nowyrynekpierwotny. pl.
Of course, developers’ websites will be a valuable source of information as well. You will find there visualizations of investments, floor plans and you can check which apartments are on offer. You can also make an appointment with a developer at his office or on the building site (if the construction is at fairly advanced stage).
Visit housing fairs. At a fair you will find many developers in one place, but also credit advisors and real estate agents. Fairs usually take place on the weekend. You can find Information about such events, for example, at mieszkaniowi.pl or targimieszkaniowe. pl (the first page has an English version).
What should you pay attention to when choosing a flat? This is a topic for a separate post. You must surely check traffic congestion at different times of the day. Find out what is being built in the area now and what is to be built in this area in the near future, what infrastructure looks like (roads, shops, services).
If you have a certain neighbourhood in your sights, go out there and spend some time – take a walk around the area, sit down for a cup of coffee in a café. Try to get to this place in rush hour, or at times when you usually return home.
Pay attention to the completion date of the investment. It may be the case that the investment has just started and you will have to wait for your apartment, for example, two years. You will pay interest on the loan during this period, as I am writing below, so you have to take this into account.
On the other hand, when you buy at an early stage of the investment you have a greater choice of apartments, which is an undeniable advantage. Buying a flat at this stage we call “buying a hole in the ground” in Poland 🙂
3. You have chosen an apartment – you can sign a contract with the developer
When you sign a contract with a developer, most often the construction is in progress and you can see your dream apartment only on the developer’s advertising materials. The main difference between buying an apartment from a developer (primary market) and from the secondary market is that in the first case you have to pay before signing a property act. This is done by means of the so-called development contract. The principles of execution of a development contract are strictly defined by the so-called Property Development Law, which is the basic legal act in Poland regulating this matter.
So you are signing a development contract (it can only be signed at the notary). You will pay your developer in instalments / tranches according to the schedule specified in the contract. And if you have taken out a mortgage loan, you pay the instalments with your mortgage loan.
The money that you pay to the developer is transferred to a trust account. This is a special account to which the developer has no access. The trust account is usually maintained by the bank which has granted the developer a loan for the investment. This bank monitors whether the developer is completing the investment according to the schedule.
Before you sign a property development contract, you can sign a so-called reservation agreement. This is a simple agreement (there is no need to go to a notary) thanks to which, after paying a certain amount (a few thousand), the developer will reserve the chosen apartment for you for a certain period of time. On the basis of the reservation agreement, a preliminary loan approval can be obtained and many borrowers do so.
4. You are applying for a mortgage loan
If you have signed a development contract or a reservation agreement, you can apply for a home loan. Other documents needed for the loan are already prepared, because you had met with a broker or a bank beforehand.
You should not wait with your application as the contract with the developer sets a deadline, so you have to get your loan as soon as possible. If the loan is not settled in time, you may lose the reservation fee. However, it is fair to admit that developers are flexible and often agree to prolong the deadline. Often, too, in the reservation agreement, it is stipulated that if three banks refuse to grant a mortgage loan, the reservation fee will be refunded.
Therefore, it is a common practice on the Polish market to file home loan applications simultaneously to several banks (usually three).
You should do the same to cover yourself in case your application is rejected by one of the banks. I also write on this topic in other posts on this blog. A mortgage broker (mortgage advisor) will help you submit credit applications.
After 4-6 weeks it should be all over and you have signed a mortgage agreement.
5. Did you know that you will pay off your mortgage loan before you move in?
It can be up to 2 years! This is the downside of buying an apartment from a developer. (There are also advantages. You will not pay 2% PCC tax as is the case for the secondary market).
How will the payment work before you move in? Luckily, it will not be a full instalment, but you need to know roughly what figures to expect. You will only pay interest on the disbursed tranche.
Let me give you an example: let’s assume that you have only transferred PLN 100k from the loan to the developer, the interest rate of the loan is 5.5%, so you will pay PLN 458 per month (interest only). With disbursement of every tranche the instalment will increase accordingly.
Why did I assume an interest rate of 5.5%, which is higher than the market rate (~4%)? Because until the mortgage is established, the interest rate will be increased (the so-called bridge insurance). If you want more about polish mortgage loan market main figures, fees & charges go to this post.
The mortgage will be established after the developer completes the construction, obtains all permits and signs a notarial deed with you (that is when you become the owner of the apartment).
Therefore, before signing an agreement with the developer, ask what the payment schedule is. Developers often use the 10-90 scheme, i. e. 10% of the price after signing a property development contract, and 90% after, for example, completion of construction. Generally, it is best for you to pay as much as possible as late as possible.
6. You have collected the keys – you can start finishing your apartment
Surely, you spent a lot of time thinking about how to arrange your new flat. You should already have an appointment with the building contractor, who will carry out finishing works.
Before you get the keys in your hand, you will have to arrange a meeting with the developer, a so-called apartment hand-over. This is an important point. If there are any faults, you should report them now – they will be recorded in the protocol. It is a good idea to take somebody with you to the appointment, the building contractor or other trusted person who will help you spot possible faults (if there are any) .
If you also took out a loan for finishing, take the handover protocol to the bank – this is usually a condition for disbursement of the loan tranche for finishing. The bank will want to confirm that you have used the money in accordance with the agreement – so you will have to provide the bank with photos (or the bank will send an employee to inspect the apartment). The bank will impose a deadline in your mortgage loan contract for finishing the apartment – e.g. 6 months.
7. You are signing a notarial deed and you are the owner of a new flat
Congratulations! You’re now an owner (or a landlord if you have bought an apartment to rent it). If you have completed the finishing works, you can move into your new flat. Can you imagine any better feeling than this?
Meanwhile, I will tell you what formalities you will still have to go through with regard to the loan.
If you hired a broker, this the right moment to contact him again – he will help you to arrange everything that I described below.
- Buy apartment insurance
First of all, insure your property. The bank requires you do to so – there will be a deadline in the credit agreement, e. g. 14 days from signing the notarial deed. At this time you must deliver the insurance policy to the bank. You will also have to cede your rights to the policy of insurance to the bank. What does it mean? In case the policy should cover damage to the property the bank will have to give the insurance company permission to transfer the insurance to you.
The apartment is a loan collateral and the policy insures the apartment, therefore the bank wants to secure itself in this way. Tell the insurance broker to enter the cession into the insurance policy – he cannot know that you have to do so.
You will have to renew your policy each year and deliver it to the bank. There is another option – you can choose an insurance offer at the bank that granted you a mortgage loan, then the bank will debit an insurance fee to your account every year, which is certainly convenient.
- Bring the notarial deed to the bank
You also have a fixed deadline to deliver the notarial deed. So grab your policy, the notarial deed and rush to the bank.
- Record a mortgage at the Registrar’s Office
Another deadline in your credit agreement is the establishment of a mortgage. You can do this only after you have signed a notarial deed as the owner of the property. You will receive instructions on how to do this either in the bank or from your broker.
Remember to provide the bank with a certificate from the mortgage registry! This is the last important deadline. In point 5 I mentioned that the credit interest rate will be increased until the mortgage is established. This means that your instalment will be higher until then.
Therefore, it is in your bussines that interest rate should be lowered as soon as possible. After entering the mortgage, the Registrar’s office will send you a letter of notice. You must then contact a bank or your broker – they will help you settle the issue.
That’s it. I hope that I managed to clarify the topic and this post was helpful for you. I am looking forward to your feedback so if you have any remarks, please leave a comment under the article or write to me at kamil@polishmortgage.pl
