How does anyone ever buy a house in Boston metro?
April 25, 2012 2:00 PM   Subscribe

How can we possibly buy a house in the Boston Metro area without $80K down?

We are renting so we know we can afford about $2400 a month in mortgage, but with all the reasonable homes starting at $400K aren't we out of luck without $80K down? We can maybe come up with $15K cash without using money we shouldn't use. So how can we make a house happen in this credit restricted times?
posted by anonymous to Home & Garden (16 answers total) 5 users marked this as a favorite
 
Look into an FHA loan? I'm pretty sure those are still 3.5% down.
posted by rabbitrabbit at 2:01 PM on April 25, 2012 [2 favorites]


Yes, still 3.5% down. (Sorry, had to get to a real computer to paste link.)
posted by rabbitrabbit at 2:04 PM on April 25, 2012


It's also worth noting that a big part of "How do people afford this?" often includes "Renting cheaply and saving up a lot of money for many years."
posted by Tomorrowful at 2:05 PM on April 25, 2012 [5 favorites]


This is also a classic "borrow-from-parents" scenario, if you are lucky enough to have that option.
posted by thinkpiece at 2:09 PM on April 25, 2012


Are you set on a house? If you're desperate to own, I'd buy a condo. I'm in JP, and there is a good number of reasonably priced condos around. Probably spend less if you go to Rozzy, or West Dorchester.

But Boston is just an expensive place to buy, and (and I don't mean this to sound patronizing) not everyone should be buying here, particularly if they have only $15K to throw at a house before dipping into off limits money.

You can probably rent someplace cheaper and save up, if you're paying $2400; I cut my rent in about half by moving to JP, and I'm paying considerably less than $2400 for what I think is the nicest apartment I've ever lived in.
posted by Admiral Haddock at 2:19 PM on April 25, 2012 [2 favorites]


I had exactly the same question, and live in the same area. I'm comfortable, financially, but not so much so that I had $80k in the bank for a down payment.

I just bought a house in the range you've described with only $12k down. FHA loans are the way to go.
posted by ellF at 2:21 PM on April 25, 2012


Yes! As first time homebuyers, hopefully you can use the same state program I did. It gives you a soft second mortgage so that you don't have to put nearly as much down.

I bought a condo, but I have friends who've bought houses. Look into first time homebuyer classes, they'll help you learn more about resources like this.
posted by ldthomps at 2:21 PM on April 25, 2012


This is also a classic "borrow-from-parents" scenario, if you are lucky enough to have that option.

Although you will probably be forced to swear that it is a gift you have no intention of paying back or your mortgage application will get rejected.
posted by dfan at 2:30 PM on April 25, 2012


Gifts from parents are not viewed favorably by the FHA programs. What you want is a credit score of >580, at least 3.5% (either in cash or an investment like a 401k) to put down, and good income. I worked with Mortgage Lenders of America and found it to be an incredibly easy process, at a very competitive rate, but I'm certain that any number of lenders would allow you to do the same.

Don't be scared off by the mythical 20% rule. It makes sense when you're buying a tiny condo, or when you live someplace with average housing prices < $200k. As a first-time buyer in the Boston area, or even the Greater Boston area, there is no reason to think that you aren't ready for a house just because you don't have that kind of dough.

One caveat is that you need to be prepared for high property taxes. While my mortgage is ~$2k/month, and my previous rent was about $2,700, property taxes make up that difference such that it's essentially a wash on a month-to-month basis. Most online calculators (especially those on real estate listing sites) won't include property taxes, PMI or Mortgage Insurance, or other "added" monthly costs that you really need to be certain about.

I would suggest calling a lender, asking about FHA, and getting pre-approved. That will require a hard credit pull, but otherwise it's painless, and it will tell you in very tangible terms just how much house you can actually buy. Run those numbers against your own budget, find a good buyer's agent, and start hunting. The worst outcome is that you decide against doing this; the best is that you lock a fantastic rate at what is perhaps the best time to buy a home in recent memory.
posted by ellF at 2:37 PM on April 25, 2012 [1 favorite]


Local credit unions are also not as restrictive as all the big national banks right now in terms of mortgage lending. Our local credit union is actually structuring a loan for our first home as an 80-10-10 (we put down 10%, they write a conventional 30-year fixed mortgage for 80% and a second mortgage for 10%); evidently almost none of the big banks will write that sort of mortage anymore.

However, with $15k of cash, you are still scraping up against the absolute lower limit of FHA downpayments. A 3.5% downpayment on a $400k house is $14,000, which doesn't really leave you enough money for closing costs. I shopped around a lot for mortgages, and the credit union I'm using is a killer deal (no points, just a flat underwriting fee of $600) but still will require around $3k in closing costs (title insurance, appraisal cost, underwriting fee, various state and county recording fees), plus $3k in pre-paid interest, insurance, and taxes--for a total of downpayment + $6k that we need to bring in cash to the closing.

We could have swung 20% by emptying our emergency funds and borrowing a bit from my 401k, but I'm really, really glad we decided instead to only put down 10% and give ourselves a ridiculously large cash cushion. The house we're under contract for has been taken care of really well, but needs a new roof (about $4,500). Plus our lease is ending 6 weeks after our closing, so barring a property manager that is really motivated to get someone in our rental early (doubtful to say the least) that's another $3k down the drain. Plus the costs of the inspection--regular and a sewer scope--is costing us another several hundred dollars. And that doesn't even get to moving costs.

All of which is to say: you don't have to have $80k saved, but I would really hesitate with only $15k. Of course, that's no reason to not go talk to a credit union or mortgage broker and start to get a feel for what closing costs will be and what sort of down payment you really will need.
posted by iminurmefi at 2:43 PM on April 25, 2012


Cambridge offers free first-time homebuyer classes, by the way, which I found really helpful -- they bring in a real estate agent, and a mortgage broker, and a home inspector, etc., and they talk about assistance that's available, among other things. Other cities in the area may have something similar.
posted by cider at 3:57 PM on April 25, 2012 [1 favorite]


Don't sweat closing costs. FHA loans allow you to structure an offer such that the seller can pay up to 6%; in my case, the seller is paying all closing. It's a buyer's market in that regard, and if you can put down a $15k down payment, you can almost certainly negotiate a reasonable number with your seller.

If you aren't married to being in Boston proper, you can find fantastic properties within the 495 belt. Heck, even the South shore (Quincy, Braintree, etc.) have marvelous single families for $375,000 and less. That's also asking price -- you will almost certainly find a place you can negotiate another $10k-$20k off of.

What you WILL need money for is earnest money for your offer ($1,000, traditionally), as well as money for a VERY GOOD inspector who is NOT one recommended by any agent, broker, or party involved in the deal ($600-$800), and depending on the property, additional funds for testing things like water quality ($~250), septic system integrity ($~200), and when you get to it, to cover moving costs, utility setup, and other incidentals.

Figure you'll want another $10k-$25k available within the first year, either through income or savings, to take care of repairs and issues that you will uncover once you own the property. Your boiler or furnace will die, or a chimney liner will need replacing, or the kitchen appliances will fall apart. Something always comes up.
posted by ellF at 4:06 PM on April 25, 2012


Yeah, a chunk of that 15k is going to go to stuff like earnest money and inspectors. We had 25k and it seemed to go pretty fast before we even got to putting 5% down on a FHA loan. This wasn't a huge deal as the first time homebuyer tax refund was still in effect, so we got a lot of the initial outlay money back to put into our war chest for repairs, improvements, and Uh-Ohs. Our seller paid our closing costs, which was great, but we also had a car explode infront of our house a week before closing, which was less so.

We did have a gift from my folks, which helped. Getting the exact wording of the gift letter was a PTA (my dad and I have similar names - we went round and round with the lender to make them satisfied I wasn't somehow giving money to myself.), but in the end we switched lenders and they didn't even care about the letter.

If you only have 15k and That's It, it might not be a great time for you to buy in Boston. You'll want 5k on hand for when you move. Consider looking outside the city if you can. We're in Salem - it's a 10 minute walk to the train and a 35 minute ride into Boston. It takes just about as long for me to get to work now as it did when we lived in Somerville, but with the added benefit of having a seat and knowing when the train will actually show.
posted by robocop is bleeding at 4:36 PM on April 25, 2012


Whoa--where in metro Boston are you looking that prices start at $400K? Back Bay and the South End? Harvard Square? If you're really insistent on living downtown, then yeah, you're going to have to save up for a down payment (though you can find loans that let you pay PMI and 10% or less as a down payment). But Boston has lots of really vibrant neighborhoods on major transit lines that will get you downtown in ~10 minutes, which are themselves interesting and fun places to live. I did what Admiral Haddock did, and moved to JP. Condos within a few blocks of my house are selling for <$300K. Somerville up toward the Medford line is a tad more expensive, but still well under 400. Single family places in Roslindale start around $325K. If you're willing to move a little further out, Quincy is even cheaper. If you're looking the suburbs, then as long as you're not hell-bent on living in Wellesley or Weston, you can easily find a place within your budget.

If you're not totally familiar with the area, check out this question from a couple days ago for some other discussion of neighborhoods that might work for you.
posted by Mayor West at 5:18 AM on April 26, 2012


We recently bought a place just outside of Harvard Square for more than $400K, with far less than $80K down. We put 5% down, and have two mortgages (so no PMI) - a primary mortgage for 75% of value, and a second mortgage of 20% of value. Both came from the same bank. It was a simple and smooth process.
posted by NotMyselfRightNow at 5:22 AM on April 26, 2012


We gave up and moved to Rhode Island. Happier now than when we lived in a lead-coated duplex in Norwood, and we can go up to Boston whenever we like.

*shrug* Pretty much this is why sub- or exurbs like Franklin exist
posted by wenestvedt at 9:14 AM on April 26, 2012


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