Strategies for First-Time Boston Condo Buyers
Common Misconceptions First-Time Home Buyers Have
If you recently shared with friends or family that you’re ready to buy your first home, you have no doubt been offered plenty of well-intentioned bits of advice about the process. But be aware: Not everything you’ve heard may be accurate.
Here are some common misconceptions first-time home buyers may have and the real facts behind them. Remember that every home buyer’s situation is unique, so do what you feel is best for yours.
This may be true if you’re planning to rent for a short period of time. But if you’re planning to rent for several years, you might be better off purchasing a home. A fixed-rate mortgage is stable for 15 to 30 years, but rents may increase on average as much as 5% per year.
Money spent on a mortgage each month is building equity in something you’ll eventually own, and is a foundational means to growing wealth. Consider using a rent vs. buy calculator to run the numbers and see if owning makes better financial sense for you in your area.
A 20% down payment will help you avoid paying private mortgage insurance (PMI), but you can buy a Boston condo for sale with as little as 3% down. You may be able to put down even less if you qualify for a U.S. Department of Agriculture (USDA) or U.S. Department of Veterans Affairs (VA) loan. Check with your loan officer to see if you qualify for any first-time buyer programs.
As mentioned above, a 20% down payment usually allows you to avoid paying private mortgage insurance. But with a down payment less than 20%, a lender typically requires the buyer to take out PMI — which generally costs between 0.4% to 2.25% of the mortgage annually, and is rolled into your monthly mortgage payment. PMI can be removed once the homeowner has paid down enough of the loan’s principal.
A less-than-perfect credit score doesn’t preclude you from buying a Boston condominium. Lenders consider several factors, in addition to your FICO score, when evaluating your mortgage application. Your income, outstanding debt, savings, assets, and other investments are just a few of the factors examined by a potential lender.
However, while many lenders do offer mortgages to home buyers with FICO scores in the “Fair” and “Good” range, it pays to work on improving your credit score as much as possible. The higher your credit score, the better your chances of securing a loan with more favorable terms.
The notion that you must be free and clear of student loans in order to qualify for a mortgage simply isn’t the case. Mortgage lenders look at your debt-to-income ratio (DTI) to assess how much outstanding debt you owe compared to how much income you have. Your DTI is calculated as a percentage of your gross income, and lenders usually like to see a DTI of 50% or lower.
So while it’s true that the less debt you have, the better when applying for a mortgage, outstanding student loan debt itself will not prevent you from securing a mortgage.
Applying for a mortgage requires several key pieces of documentation, beyond providing your prospective lender with a Social Security number and a pay stub. The required documents may vary slightly from lender to lender, but it’s never too early to start gathering:
Social Security numbers for all loan applicants
Six months of checking and savings account statements
Account statements of other assets including investment accounts, retirement accounts, stocks, or bonds
Recent pay stubs for each loan applicant
A list of all credit card accounts with outstanding balances and monthly payments
A list of other outstanding debts and monthly payments including auto loans, student loans, medical debt, and child support or alimony
Two years of income statements, such as copies of your tax returns
Contact information for your current employer
A home sells for what a buyer is willing to offer and what a seller is willing to accept. In other words, the listing price is negotiable. In highly competitive markets, that may mean homes are selling for well above asking price, and it might be wise to look at homes well below your budget in case you need wiggle room to raise your bid. Less competitive markets have more room for straightforward negotiations.
This is where working with an experienced real estate agent has its advantages. A seasoned agent will guide you through the buying process and help to create an offer strategy that best suits your situation. They’ll likely have knowledge of the seller’s motivations, can ask the right questions of the seller’s agent, negotiate on your behalf, and will have completed a comparable market analysis (CMA) on homes in the area to know what a fair and reasonable offer might be.
A down payment is a big part of your upfront costs, but you’ll also be responsible for closing costs and other expenses as you approach the finish line, including:
Loan origination fees
Private mortgage insurance premium
In addition, you may have other variable fees and expenses including costs for a home inspection, appraisal, attorney fees, and a real estate agent commission. You may also want to budget money for moving costs, and any immediate needs you may have once you move in, like replacing appliances or small fixes that your home inspection turned up.
For most people, buying a first home is not only a major milestone, but likely the largest financial investment they’ll make in their lifetime. Rely on professional expertise to help navigate the process and ensure you’re getting the best deal for you.
Once in a while I try to stop, take a step back and ask myself: If I were a first-time Boston condo buyer, how would I dive into the complex and exciting task of buying real estate in downtown Boston?
Boston midtown real estate buyers today are inundated with choices and information, from the ubiquitous real-estate-agent-ad-on-a-TV-commercial, to 3D tours that launch from craigslist ads. With so much at your fingertips, here’s a quick rundown on what to do – and who to listen to – first.
1. Nail down your price range.
It’s not just about getting pre-approved for a mortgage, although you’ll want to do that, too. But banks and lenders are good at luring Beacon Hill home buyers into spending more than they intended. Being able to borrow $800,000 doesn’t mean you need a $800,000 condo.
2. Get the scoop on the Boston real estate market.
Savvy real estate investors watch the numbers — time on market, months of inventory, median sales price, and more — for the Boston downtown condo market and a specific neighborhoods, like Boston Midtown, before they buy That’s real important sales data is available for any downtown Boston neighborhood. You can send me an email at firstname.lastname@example.org and I can send you this data. No full name or phone number required. Privacy will be respected.
3. Know your Portland neighborhoods
A Boston condo for sale at Charles River Park may not be as swanky as that one in the Boston Seaport District, but have you look at the neighborhoods’ walkability scores? Where’s the nearest hospital? The internet can tell you a lot, but the best way to get to know the neighborhood where you’re thinking of buying a Boston condo for sale is to drive and walk around yourself.
4. Ask questions.
There are no stupid questions when it comes to making a commitment to buy your first Boston condo for sale. Real estate agents are great because we don’t mind being bothered by your phone calls and emails, whether you’re confused about the escrow process or have a question about the Boston Midtown real estate you looked at last week. You should also ask as many questions as possible of the sellers’ agent, your mortgage lender, and the home inspector!
5. Be realistic about home improvement.
You might be talked into buying a Boston condo for sale (either by yourself or by the do-it-yourself-er in the family) that needs some repair to be perfect. Ask yourselves: Do you have experience completing the needed tasks? Does your schedule allow time for these projects? I’m not saying that fixer-uppers can’t offer great deals that allow you to put your own personal touches on your home. Just think it through first. If you need sobering up, bring a contractor you trust through the Boston downtown condo with you.
6. Use a Boston real estate agent.
When you buy a downtown Boston condo for sale or anywhere, you want an experienced professional on your side. While there are plenty of online tools to help you find everything from home values to aerial photographs, you can’t beat a trusted downtown Boston real estate agent to guide you through the process.
For more information please contact one of our on-call agents at 617-595-3712.
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