Not only will buying your new home be the biggest purchase of your life, but it will probably be the most complex transaction you’ll ever be involved in. If only it were as easy as saving up a boatload of cash and wheeling it over to the home that you’re purchasing, giving it to those owners, and watching them pack up and leave, right?
It’s just not something to jump into without forethought and research – or without expert professional guidance from your local real estate agent. Before you sign the dotted line and commit to 30 years of monthly mortgage payments, you need to make sure you’re ready to take the plunge and that it’s the right move for you. To help you out, then, here are the 4 things to do before you think about buying a home in Massachusetts.
1. Determine What You Can Truly Afford
The most common mistake people make when buying a home in Massachusetts is that they buy more home than they can actually afford. One way to avoid this regrettable mistake is to do the math and then follow the common wisdom, which says that you should spend no more than about 30% of your take-home pay on housing.
In determining what you can really afford, keep in mind that that recommended 30% cap includes a lot more than your monthly mortgage payment. For you will also have recurring expenses such as homeowners insurance, property taxes, private mortgage insurance, condo or homeowners fees, maintenance and repairs, and unexpected payments that will pop up.
A good way to ensure that you don’t go beyond what you can afford when buying a home in Massachusetts is to use the 28/36 rule – spend no more than 28% of your monthly gross income on housing costs and no more than 36% on total debt, which includes housing and other debt like student loans and car loans. This is the measure that mortgage lenders commonly use to assess your borrowing capacity.
2. Budget for Down Payment and Closing Costs
Before buying a home in Massachusetts, you should think about budgeting for the down payment and closing costs. Ideally, you would be able to pay 20% of the purchase price down in order to be able to borrow a smaller amount, have better loan terms, and to avoid having to pay for private mortgage insurance (PMI). This PMI, which provides a safety cushion for the lender in case you can’t make your payments, can be a pretty hefty amount, typically 1% to 2% of the loan amount.
And then there are the inevitable closing costs, which buyers frequently neglect to take into account. Although closing costs vary depending on location and the type of loan, they typically run from 2-5% of the total price of the property. At closing, you will pay the first of some recurring costs such as taxes, insurance, prepaid loan interest, and title insurance, as well as some one-time fees for the inspection, appraisal, application, and more.
3. Get Mortgage Pre-Approval
Pre-Approval is a must if you plan to submit a credible offer for a home in Massachusetts. A pre-approval analyzes your creditworthiness, tells you how much you can borrow from your lender and, ultimately, can make the difference between winning a bid or not. In perpetually hot markets like we have here in the Greater Boston area, pre-approval is a necessity. Sellers will often reject offers without pre-approvals because they spell out exactly how much a lender has agreed to lend, assuring the seller that you’re both willing and able.
Be aware that getting pre-approved is not the same thing as getting pre-qualified. Pre-qualification is much weaker because you don’t have to provide documentation to your lender to back up your claims about your financial situation. It gives you a general idea as to what you can afford, but that’s about it. Pre-approval carries far more weight with sellers.
4. Research the Area and Local Market
One final thing to do before you think about buying a home in Massachusetts involves researching the area you’re interested in. There is no such thing as being too informed when it comes to buying property, so take your time to know as much as you can about the area or neighborhood that you’ve identified as having potential. Your research here would include looking closely at local market conditions, especially property prices and trends in property values. But don’t skip other important considerations like crime rates, quality of schools, and the personality of the neighborhood.
Doing these 4 things before you think about buying a home in Massachusetts will go a long way toward putting you on the path to a wise purchase. Still, more remains to be done. And this is where its best to rely on the expertise of your agent.
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