Okay, homes are expensive
Buyers who want to move into the City of Boston often hear about the high prices of condos and assume they can’t afford to buy. Well, to a certain extent, it’s expensive to buy. However, if you’re willing to compromise, you may in fact be able to purchase a nice new home.
Here’s the best I can offer to someone who has very little money/income but wants to live in the city.
Right now, there are 83 condos in the city of Boston for sale between $225,000 and $275,000. No, I’m not including the tiny 275-square-foot studios for sale in the Back Bay. I narrowed the list down to include only one-bedroom (or larger) condos, greater than 500 square feet. I also narrowed the list down to only include those neighborhoods that most of my clients like to live in (I left out Roslindale and West Roxbury, for example, because I don’t focus on those areas). It turns out that there are plenty of condos available in South Boston, Dorchester, and Brighton. There are also some in the Fenway, Charlestown, and Jamaica Plain. Excellent neighborhoods.
Now, I know what you’re saying. You want to live in the South End or Back Bay. Yes, and I want to live in Wellesley. Unfortunately, that’s not realistic. The goal here is to find a nice, safe, clean, and fair-sized condo to call home, at least for a couple of years, until either you settle down, move, or join the circus.
Let’s create a hypothetical situation. You make $800/week ($20/hour). That’s $41,600 per year. You work at Fidelity Investments – they’re great. Up until now you’ve been renting in South Boston with a couple of buddies, paying $800/month (plus utilities). That’s not bad – you pay 25% of your income in rent – lots of people pay more. It’d be better if it was only 20% of your rent, but…Boston’s expensive.
Now, you’re ready to buy your own home. You’re 28 years old and itching to settle down. Trouble is, you’re still single, so you only have one salary to draw upon to pay for things.
Here’s what you need to do. Worst case scenario, you have very little savings – perhaps you’ve been able to put aside $13,000 over the past six years, since college. Or, perhaps, your parents are going to give you the money. You’ll need this cash as a down payment – you could get a no-money-down loan, but the trouble is, your monthly mortgage payment would be higher. For the purposes of this example, let’s stick with the idea that you a little bit saved. That’s probably true for most young people. At least those not drawing on a trust fund.
Most important is, how much can you afford to spend and how much will the bank let you borrow.
Those are actually two separate questions, and you should consider them, separately. Banks love to lend these days. Trouble is, if you’re spending 60% of your take home pay on your mortgage, you won’t have any money left for luxuries such as a car payment, or cat food. I advise all my clients to decide how much they want to spend, first, not how much can they borrow.
This is my analysis of the situation.
Together, we find you a nice, 1000 square foot, 2-bedroom home on Montebello Road, in Jamaica Plain, within walking distance to the Orange Line, on the market for $274,900. No one pays full price for anything, so let’s figure we can talk them down to $269,000. At closing, you’ll put down $13,450 (5%). The bank will loan you 95% – one mortgage for $215,200 and a second one for $40,350. Your monthly payment for the two, combined (at 5.25% – 5 year adjustable rate) is $1,411.
Unfortunately, you will have pay for other things, such as homeowners insurance (say, $53/month), property taxes (say, $223/month), and condo association fees (say $170/month). Those are all practical numbers, and you may end up paying less (there’s a $1,000 annual deduction in property taxes, for example, for owner-occupied properties in the city).
Therefore, you are going to have to pay $1,862 per month for home expenses. If you make $800 per week at your job, then more than 1/2 of your income will go for housing. Guess what, you can actually get banks to loan you this much. It’ll be tough for the first year or so, but you might be able to pull this off.
Also, consider that you will actually pay less than $1,862 per month. You will get to deduct the interest you paid on your mortgage, as well as property taxes. Based on my calculations, your monthly payment will come out to about $1,487. That’s not bad.
So, it is possible for a single person five years out of college to afford to live comfortably in the city of Boston. It definitely can be tough, though.
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Updated: Boston real Estate Blog 2022