Home Buying
Experts offer advice for first-time home buyers in Massachusetts.
Single family house on pile of money. fotopak – stock.adobe.com
The median home price in Greater Boston surpassed $1 million last July. It’s a sticker price that has many first-time buyers reeling — and wondering how they’ll ever be able to put aside enough money for a down payment.
“Everyone’s going through it,” said Julian Hernandez, a licensed loan officer with Fairway Independent Mortgage Corporation. “Things have never cost more, and people are struggling to find the income to offset that. Between it all, they’re trying to save for a down payment.”
A recent study from financial marketplace LendingTree ranked Massachusetts as the state with the second-highest median down payment requirement in the US, beaten out only by California. The dollar amount? $85,000.
That’s almost double than the median planned down payment for buyers nationally. “The typical buyer now plans to put down $45,000, a huge jump from just three years ago,” said LendingTree’s chief consumer finance analyst, Matt Schulz. “Even then, it’s still short of 20 percent, and at a normal savings pace, it would take the average household more than a decade just to scrape that money together.”
For buyers in Massachusetts, that estimate is even longer. What’s a prospective buyer to do?
Once you’ve worked with a professional to figure out how much you can afford, it comes time to decide how much you’re going to set aside for a down payment. “Start with a realistic savings goal,” said Rahel Choi, a broker associate with eXp Realty in Boston. She points out you may only need to set aside as little as 3 to 5 percent of a home’s purchase price, depending on your mortgage lender and loan type. No matter how much you save, however, it’s often not necessary to put away the standard 20 percent.
“The biggest misconception in the home buying process is someone stuck with the idea that ‘I need a 20 percent down payment in order to buy a home,’” explained Mounzer Aylouche, vice president of homeownership programs with MassHousing, an agency that provides financing to make homeownership more affordable. “So don’t give up because you don’t have 20 percent. Do your research, get educated, and get a home buyer counseling certification in hand.”
Down payment assistance in Boston and Massachusetts
When saving upwards of tens of thousands of dollars feels impossible, there are resources to ease the burden.
Down payment loans
MassHousing provides up to $30,000 in down payment assistance to eligible first-time buyers. The amount a buyer is granted depends on how much they earn annually compared to the area median income in their county. For example, a buyer in a Middlesex County city like Lowell earning up to $66,762 could receive a $30,000 down payment assistance loan at 0 percent interest.
Last year, MassHousing expanded its down payment assistance program to buyers earning more than 80 percent of the area median income. Now, a buyer in the same county, such as in Cambridge, earning up to $205,335 could still receive $25,000 in down payment assistance, with just a 3 percent interest rate payable over 15 years.
“We got a MassHousing loan which helped us up our down payment of 7 percent to 10 percent, and that made us more competitive in this market,” Choi said of her own homebuying journey.
For buyers in Boston, there’s the One+Boston program, which offers assistance to income-eligible buyers, as well as many other first-time home buyer programs throughout the city and state.
Home buyer grants
While down payment assistance offers loans at low interest rates, grants do not require repayment. They act as financial gifts for low- to moderate-income buyers.
“I actually just did one for a client who got a grant from the city of Lynn to purchase property,” Hernandez said. “They gave him $12,000 toward his closing costs. No questions asked.”
A mortgage lender can help you search for these opportunities. “At Fairway, we have an internal [database] where we can search to see what’s available based on cities and states,” Hernandez said. “But outside of that, usually people are going to do their own digging right to try and see what would be approved and what they would ultimately qualify for.”
Places to include on your grant search include the US Department of Housing and Urban Development’s searchable database of state and local programs, city-run programs, nonprofit support like local community development corporations, grants for teachers and first responders, and any grants available from your employer, among other resources.
Money-saving tips
Consolidate debt
“Where I see most people struggling is having a lot of debt to begin with,” said Hernandez. He recommends looking into consolidating any existing debt you may have with a debt consolidation loan. Then, pay down your credit card balance if it’s nearing its limit. Both actions can improve your debt-to-income ratio, which mortgage lenders use to assess your ability to repay borrowed money.
“Having high balance on a debt consolidation loan does not affect your credit negatively like it would on a credit card,” Hernandez explained.
Eliminate unnecessary monthly costs
Finding cheaper or bundled insurance policies, canceling unused subscription services, and automating bank transfers to your down payment fund could come next. The thinking is gradual cutbacks over the course of many months can bring you closer to your goal.
“All of those things just always add up,” Hernandez said.
Madeline Bilis is a freelance journalist based in Boston, where she covers real estate, travel, and design. She will always defend the city’s brutalist buildings.
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