Many buyers in the Boston real estate market are told what they can afford for a mortgage by their lenders based on their income and expenses. In most cases, this makes sense, however, based on the specific property you choose this affordability range can change dramatically and increase your buying power. Often times you maybe able to buy a property for $100K more (or conversely, less) for the same monthly mortgage payment because of these factors. I describe a few factors below, and you can also learn more about these and more at one of our Home Buyer Classes or in a private buyer consultation.
Condo Fee Differences Between Properties
A property priced at $350K with a condo fee of $450-500 dollars per month (say, for a large building in the Charlestown Navy Yard) is almost the same monthly payment as purchasing a property for $450K with a $100-150 condo fee (Typical for a triple decker in Southie). The lower the condo fee, the higher the price you can afford. But always compare apples to apples for condo fees between buildings.
Property Taxes and Owner Occupancy Exemptions
Another way to increase your purchasing power is finding a property with the owner occupancy exemption already in place. In the city of Boston, you can get $1,644 off the top of your of your property taxes. When looking at properties in the $350K price point, it saves you about half, resulting in $137.00 dollars per month savings which can raise your budget around $30K! (based on 3.5% percent interest rate). If the property is a rental or the exemption isn’t in place, your lender will qualify you based on the first year total monthly obligation.
Also be sure to compare the property taxes between properties, especially when looking in two or three separate cities. I’ve seen big swings in property taxes due, even for properties listed on the market for similar prices.
ARM Financing Home Loans
The last way some buyers can think about strengthening their buying power is getting a 3, 5 or 7 Year ARM financing products (ARM stands for adjustable rate mortgage) which will often carry a lower interest rate – as much as 1% lower.
For example, a $400,000 purchase on a 5 year ARM at 2.5% could result in approximately $200 dollars in monthly savings versus a 30 year fixed rate loan at 3.5%.
In recent markets, the percentage difference between ARM rates and 30 year fixed rates have become slimmer than ever but the average ARM is lower than a fixed rate. In Boston, the typical first time home buyer does stay in their property longer than 5 or 7 years, making an ARM mortgage a sensible option. With these products, you can take advantage of the lower interest during the first few years of ownership.
Talk to a Mortgage Professional About Your Financing Options
