Boston Real Estate: How Much House Can I Afford to Buy?

Buying a house is an exciting and important decision, but you have to carefully assess what you can afford before diving into the Boston real estate market. Considering your expenses, lifestyle, and financial stability is essential to ensuring a sustainable and comfortable homeownership experience.

Marino & Marino, P.C.    Source: BostonPads.com

Understanding the Concept of Affordability

The first question you have to ask yourself is whether you have a good handle on what an affordable home looks like to you. A good rule of thumb to follow is that you should not spend more than 30% of your gross income on your monthly mortgage payment. In fact, if you have higher monthly expenses or are trying to save, you should allocate a lower percentage of your income toward housing.

Beyond the mortgage payment, you should consider other factors that contribute to the cost of homeownership, such as maintenance, insurance, property taxes, utilities, and potential homeowner association (HOA) fees. Many of these costs tend to be variable depending on numerous factors, so you’ll have to evaluate the cost of each house on a case-by-case basis. Once you have evaluated these additional costs, you will have a more accurate picture of the overall affordability of a property.

Average Cost of Boston Real Estate

As you know, Boston’s dynamic real estate market can be hard to navigate, which leads many people to ask themselves, “What is the average housing cost in Boston?” The average housing cost in Boston depends on what type of property you are interested in buying- a condo, single-family, and/ or a two-family home, for example. The monthly mortgage payment will also vary depending on how much you can contribute to an initial down payment, and the figures displayed below assume 20% down, a 30-year mortgage, a 6.85% interest rate based on current market conditions, and other factors that may vary for individual properties.

It is also worth keeping in mind that while the down payment amount will likely be greater for a two-family property, and the net monthly payment towards your mortgage will be greatly reduced by renting one of the units out. In the case of condos, you also need to factor in monthly HOA fee payments.

Assessing Your Financial Health

Before entering the Boston real estate market, it’s also important that you assess your current financial situation. You should conduct a holistic review of your income, savings, debts, and credit score. Having a stable income and manageable debt is important when applying for a mortgage as, along with your credit score, these will be the primary indicators lenders will use in determining whether to approve you as well as your mortgage interest rate.

You should also make sure that you have an emergency fund, while also being able to pay the down payment without having to rely on the emergency fund when purchasing a home. Having that extra financial cushion will give you more security and peace of mind when you make your first Boston real estate purchase.

Determining Your Budget

Calculating what you can afford requires a detailed breakdown of various costs, such as: interest rates, loan terms, down payment, closing costs, HOA fees…etc.. The good news is that there are plenty of free, online tools and resources such as online mortgage calculators which can help you get an accurate overview of the various costs you’ll encounter in the home-buying process.

We all want that perfect dream home, but prioritize setting a realistic budget for your Boston real estate purchase that aligns with your financial constraints and long-term goals. For instance, just because you qualify for a higher-than-expected loan, that doesn’t mean you should take that amount as it may strain your monthly budget if you purchase a more expensive property. Sit down and carefully consider your usual, monthly expenses and long-term financial objectives to determine a comfortable mortgage payment that will allow you to fully enjoy your new home.

The Importance of Getting Pre-Approved for a Mortgage

Getting a mortgage pre-approval is an important step in the homebuying process; it provides you with a clearer understanding of what the bank thinks you can afford, which will allow you to be better positioned in a competitive market. A bank-issued pre-approval letter will demonstrate your reliability as a future home-buyer, and will give sellers greater confidence in your ability to secure financing and meet your payment obligations. Further, most sellers won’t accept or review your offer without a pre-approval letter accompanying it.

Considering the Extra Costs

In addition to the mortgage payment, owning a home comes with additional costs. These include property taxes, homeowners’ insurance, potential homeowner association fees, and maintenance expenses. The average costs of these items vary based on the property type; older homes will, for example, likely require more regular up-keep. When looking at potential homes, you should factor in these extra costs and the impact they may have on your overall budget.

Choosing the Right Home for Your Budget

When searching for a home in Boston, you should align your housing needs and desires within the limits of your budget. Consider the following: location and size of the home, condition of the property (whether it will need significant repairs or whether it’s turn-key ready), and the potential for future value appreciation.

If you’re considering a Boston two-family home, but it’s a little over your budget, remember that you can generate passive income by renting out one of the units. However, make sure that the long-term benefits are not outweighed by the immediate costs. If you compare the average cost of renting with the cost of homeownership, you can determine the potential for generating equity and wealth in the long run. Buying your first home not only serves as a valuable asset in and of itself, but also serves as a steppingstone towards building your own Boston real estate portfolio.

Conclusion

Determining how much house you can afford in Boston requires that you diligently consider the state of your financial situation, your budget, and long-term goals. By understanding what you can afford based on all of the costs associated with home-buying, you can make an informed decision that could allow you to start building an investment portfolio and equity in the Boston real estate market.