Are you planning on moving to Boston and buying a home? Do you already live in the Boston area and you’re ready to give up renting and become a homeowner? Be prepared for an uphill battle when buying a house in Boston. Home prices aren’t just high; they’ve been steadily rising. Inventory is also incredibly low with only 3,800 single-family homes for sale in the entire state in May 2021! During the spring, many listings received 10+ offers.
With stiff competition, high home prices, and limited inventory – not to mention the high cost of living in Boston – you’ll want to go into the home-buying process prepared. Here’s everything you need to know to buy a home in Boston.
How to Buy a House in Boston
The process of buying a house in Boston isn’t as complicated as it may seem – although there are hurdles you’ll want to prepare for. This guide walks you through each step from budgeting to move-in day with tips and advice at each stage.
#1. Set a Budget – How Much Does it Cost to Buy a House in Boston?
Don’t make the mistake of searching for homes without a good understanding of exactly what you can afford to pay. A common rule of thumb for budgeting for buying a house in Boston is the 28/36 rule. This is used by lenders to qualify you for a mortgage. Here’s how it works:
- No more than 28% of your gross income toward total housing costs (principal, interest, property taxes, and insurance)
- No more than 36% of your gross income toward total debt payments (including credit cards, car loans, and student loans)
If you earn $80,000 per year, the average salary in Boston, you should not pay more than $1,866 per month in housing costs or $2,400 in total debt payments. Of course, your goal is coming in even lower than these guidelines to keep your home as affordable as possible.
You can use the 28/36 rule to get a broad idea of what you can be approved to borrow, but it’s definitely not all you should consider to create a realistic budget. The cost of buying a home in Boston, Massachusetts also includes closing costs and the long-term cost of homeownership.
Boston has some of the country’s highest hidden costs of homeownership. Expect to pay around $14,000 per year in hidden or overlooked costs, far higher than the national average of $9,000. Make sure you consider these expenses, listed as an annual cost, when creating a budget.
- $4,900: Average property tax bill. The 2021 Boston property tax rate is $10.67 per $1,000 in assessed value. This is above the national average, and it’s exacerbated by high home prices!
- $4,500: Optional maintenance expenses like gutter cleaning and lawn care services. Boston has one of America’s highest lawn care costs!
- $1,300: Average homeowner’s insurance in Massachusetts.
- 2-5% of the purchase price: Typical closing costs for your mortgage.
- 1% of the home’s value: How much you should budget each year for repairs and necessary maintenance.
You may have other costs you don’t want to overlook. Do you need to break a lease to move? You may be on the hook for additional rent or fees. Will your furniture fit, or will you need to buy furniture in Boston on top of closing costs? You should also consider moving expenses, whether you’re going to do it yourself or hire professionals.
How Much Money Do I Need to Buy a House in Boston?
The Boston real estate market is notorious. Boston has long been one of the top three most expensive places to live in the U.S. In fall 2021, after 18 months of rising prices, the median home price in Boston dropped slightly to $675,000 for a single-family home or condo. However, 62% of homes in Greater Boston sold for over asking price.
Homes in Greater Boston haven’t been this unaffordable in decades. Prices are expected to climb even further, too. Boston area home prices increased 13% between 2020 and 2021, and one study predicts they will climb another 15% in 2021.
Renting vs Buying in Boston – Costs in Popular Neighborhoods
The Boston median home price is $675,000, but it varies significantly depending on the neighborhood. Here’s average rent vs median home prices in a selection of popular neighborhoods.
- North End: $3,880 to rent, $895,000 to buy
- Bay Village: $3,760 to rent, $1.4 million to buy
- Back Bay: $3,625 to rent, $1.4 million to buy
- Downtown Boston: $3,540 to rent, $1.42 million to buy
- South Boston: $3,430 to rent, $940,000 to buy
- South End: $3,400 to rent, $972,000 to buy
- Beacon Hill: $3,330 to rent, $928,000 to buy
- Charlestown: $3,050 to rent, $760,000 to buy
- Jamaica Plain: $2,925 to rent, $843,000 to buy
- Allston-Brighton: $2,835 to rent, $779,000 to buy
- East Boston: $2,700 to rent, $700,000 to buy
- Roxbury: $2,600 to rent, $600,000 to buy
- West Roxbury: $2,275 to rent, $618,000 to buy
#2. Get a Mortgage Pre-Approval
With a good idea of what you can comfortably afford to borrow, you’re ready to get pre-approved for a home loan. This should be done before you start house hunting in Boston to be taken seriously by sellers and agents.
A mortgage pre-approval is just like applying for a mortgage. You will need to submit an application, have a credit check run, and provide documentation on your income, assets, debts, and more.
When you’re done, you’ll have a letter from the lender that states you are pre-approved to borrow a certain amount to buy a house in Boston.
What Is Needed to Buy a House in Boston?
What do you need to get approved for a mortgage? Here are basic requirements to buy a home in Boston and qualify for a mortgage.
- Acceptable credit score. You usually need a credit score of 620+ to get approved for a mortgage. Depending on the program and lender, you may get approved with a score as low as 580 or need a score of 700+.
- Stable employment. Most lenders want to see you have been with a single employer for one or two years, or at least in the same industry and job title.
- Ability to repay. You usually need a debt-to-income ratio of 36% or lower. The lender will want to see you have enough income to cover your mortgage payments and other debt obligations.
- Down payment. You usually need a down payment, although the amount depends on the mortgage program. With a conventional loan, you need to put down 20% or more to avoid private mortgage insurance. Some mortgage programs let you qualify for a loan with as little as 3.5% down. If you’re struggling with the down payment, make sure you check for first time homebuyer grants in Massachusetts below!
- Cash reserves. You will need sufficient cash in addition to the down payment for closing costs and other expenses.
- Gift letter. If you are using gift money for your down payment, the lender will require a letter from your family member stating the money is a gift, not a loan.
- Proof funds have been seasoned or sourced. Your lender will need bank statements showing the funds used for your down payment and closing costs are sourced (they can see where they came from) or seasoned (in your account for at least 60-90 days).
Popular Mortgage Options
Your mortgage broker can help you decide which type of home loan is right for you. However, it’s still a good idea to research your options and have some idea about the type of mortgage you are looking for. Here are some options available.
- Fixed-rate mortgage. Your monthly mortgage payment and interest rate stay the same for the life of the loan.
- Adjustable-rate mortgage (ARM). Your interest rate will be locked for a period of time and likely lower than the rate for a comparable fixed-rate mortgage. However, your interest rate is subject to change periodically. This means your mortgage payment can change substantially later.
- VA loan. This is usually recognized as the best mortgage program available for veterans and military families. VA loans offer 100% financing, low funding fees, and no mortgage insurance.
- FHA loan. This is one of the most popular mortgages for first time homebuyers in Boston. The requirements are less stringent: you need to put down only 3.5% and you can qualify with bad credit. However, FHA mortgages are expensive thanks to costly mortgage insurance premiums and higher interest rates.
- Conventional mortgage. This is a loan that is not backed by the government. If you can put down at least 20%, you can qualify for the best rates available.
#3. Choose a Buyer’s Agent to Represent You
Once you are pre-approved, you can choose a qualified real estate agent to represent you. This step isn’t necessary, but it’s always advised because the seller generally pays for the buyer’s agent. Your agent will help you through the process of buying a house in Boston by exploring neighborhoods, finding homes that fit your needs, submitting your offer, negotiating, and guiding you through escrow.
This guide covers some tips for choosing a real estate agent.
#4. Start House Hunting in Boston
After all that hard work, you’re finally ready for the most exciting part: house hunting! Before you get too carried away, prepare yourself by writing down a list of your needs and wants. A need is something that’s essential and not easy or possible to change about your home. A want is something you would love to have but don’t absolutely need or can add later.
It may help to think about your priorities in terms of these categories:
- Features/amenities you need
- Features/amenities you want
- Features/amenities you do not want
- Deal breakers
Remember to have realistic expectations as you prepare for house hunting in Boston. You are unlikely to find everything you want in a home. Go into the process with an open mind and try to set emotions aside as much as possible. After all, you don’t want to fall in love with a house and pay too much – or move in and discover that the shine has worn off and there are critical problems you overlooked in your haste.
Best Neighborhoods to Buy a House in Boston
Your real estate agent can help you explore neighborhoods in Boston that offer what you’re looking for. Make sure you consider the amenities and features that matter most to you to narrow down your options. Here are just some things you may want to consider.
- Access to public transportation
- Street traffic and noise
- Home type, lot size, and architecture
- Churches and places of worship
- Nearby shopping, parks, and other amenities
Need a little help finding great neighborhoods to consider? Here are some resources that may help.
- Top schools & school districts in Boston
- Best neighborhoods in Boston
- Great Boston neighborhoods for families
- Safest neighborhoods in Boston
- Richest neighborhoods in Boston
- Best Boston suburbs for families
#5. Submit Your Offer
Found a home that checks all the boxes on your needs list and, hopefully, a few off your list of wants? It’s time to make an offer! Your agent will help you submit an offer based on comparable home sales and market conditions. Your agent will discuss what they think is necessary to make the strongest offer with the best chances of success and any contingencies you should include.
After you submit your offer, the seller may:
- Accept the offer as-is. This is uncommon, but you will go under contract once the offer is signed.
- Make a counteroffer. This is the most likely scenario. The seller may request one or more changes which you can accept or make a new counteroffer.
- Refuse your offer. If the seller is receiving other offers or doesn’t feel your offer is strong enough, they may refuse it and you can begin your search again.
#6. Close on Your Home
With an accepted, signed offer, you will be officially under contract. The next phase takes around 60 days until it’s time to close on your new home.
During this stage, you will go through the escrow process. Before you can close, many things must happen.
- Apply for your mortgage and finalize financing
- Purchase homeowner’s insurance
- Complete the home inspection
- Have the home appraised
- Complete a title search
- Meet any contingencies such as negotiated repairs or additional inspections
- Complete the final walkthrough
Finally, you will be ready to sign a mountain of paperwork that transfers ownership of the home to you, records the new deed, and ensures the seller receives the loan proceeds. You’ll receive the keys to your new home and be ready to move in!
Boston First Time Homebuyer Programs – Down Payment Assistance & Loans
Buying your first home? As a first time homebuyer, you can qualify for down payment assistance programs in Boston, first-time homebuyer mortgages, and more.
The ONE+Boston first time homebuyer loan offers closing cost & down payment assistance plus a competitive fixed-rate mortgage when you buy a home in Boston. You can get down payment assistance of up to 5% of the purchase price, but you will need to complete a homebuyer education course and have a down payment of 1.5%.
You can see additional programs available here in our complete guide to first time homebuyer programs in Massachusetts!
Ready to make the dream of homeownership a reality? Once you’re ready to embark on the exciting house hunting process, or once you’re under contract, Mass Bay Movers is ready to help you get settled into your new home. Get ready for your exciting moving day by giving us a call for a free quote!