Author Topic: First time home buyers in Massachusetts  (Read 909 times)

TheGadfly

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First time home buyers in Massachusetts
« on: December 18, 2017, 12:06:04 PM »
I'm hoping someone can point me to the information I need.

My wife and I would like to buy our first home (in the $300-400k range) in the North Shore area of Massachusetts. We will likely only have $20,000 for a down payment. Normally, I wouldn't even think of buying a house without 20% down but we appear to qualify for three different first time home buyer programs, which may allow us to put 3-5% down without paying PMI and still secure a low interest rate. This is at least what  masshousing.com seems to suggest without providing any numerical examples or calculators or comparisons with conventional loans!

For the life of me, I can't find any hard financial information that will help me mathematically determine the benefits of buying a house through a first time home buyer program. I realize that, at this point, I should probably make an appointment with a lender who can help me crunch numbers for my unique situation. But, for those of you who have been through this before, is there a blog or a website or something that will help me decide whether (given the right state program) buying with 5% down is actually a good idea?

Thanks in advance.

Cwadda

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Re: First time home buyers in Massachusetts
« Reply #1 on: December 18, 2017, 12:31:35 PM »
I bought a 350k house with 3.5% down and a $200/month PMI payment.  This ordinarily wouldn't make sense, but the catch is that the house was a multi family that I now live in, the mortgage fully paid + extra, and I live for free.

Would you consider doing buying a multi family for the house hack? It makes a lot more sense, even with a low down payment.

TheGadfly

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Re: First time home buyers in Massachusetts
« Reply #2 on: December 18, 2017, 12:38:33 PM »
Would you consider doing buying a multi family for the house hack? It makes a lot more sense, even with a low down payment.

YES! I would definitely consider this. My wife could use some convincing because she's not wild about the idea of having "other people live in our house". But I think if the numbers made sense, we could do it.

Cwadda

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Re: First time home buyers in Massachusetts
« Reply #3 on: December 20, 2017, 08:24:22 AM »
I'd be happy to talk more about how I found my investment/living situation. Feel free to PM me.

It's really one of the best financial decisions someone could make, especially starting out.

For your wife, you're not technically living with anyone, they're just next door.  I very rarely see my tenants.

TheGadfly

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Re: First time home buyers in Massachusetts
« Reply #4 on: December 21, 2017, 09:30:43 AM »
I'd like to bump this question by asking a slightly different question:

What is the strategy (or what do I need to look out for) when buying a house with only 5% down? My understanding is that, when you only put 5% down, your APR will be higher than it would be if you put 20% down. Is the strategy to refinance the house after you have 20% equity?

Also, are there any state home buying programs that make putting less than 20% down a "less-bad" financial decision? Hope that makes sense.

Cwadda

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Re: First time home buyers in Massachusetts
« Reply #5 on: December 22, 2017, 01:23:39 PM »
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Also, are there any state home buying programs that make putting less than 20% down a "less-bad" financial decision? Hope that makes sense.
Yes, there are programs that help with low down payments. They are for first-time home buyers and good rates. FHA (Federal Housing Administration) loans are with the feds, and there may be some state options available as well. (https://www.hud.gov/states/massachusetts/homeownership/buyingprgms)

I used an FHA loan. If you are a veteran, you may qualify for a VA loan, too.

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My understanding is that, when you only put 5% down, your APR will be higher than it would be if you put 20% down. Is the strategy to refinance the house after you have 20% equity?
Your rate will actually be better using a government program. However, you will be hit with PMI, and sometimes you will be stuck with PMI for the life of the loan.  So one would have to refinance (get a new loan) at 20% or more equity if PMI is not removed automatically.

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What is the strategy (or what do I need to look out for) when buying a house with only 5% down?
Generally with a government loan the lending requirements are more strict.  The appraiser might have an issue with seemingly simple things, like peeling paint or torn up carpeting. I guess the reasoning is because they want to make sure the home buyer is protected against major renovation repairs, and they want to make sure everything is affordable with such a low down payment.  So you may want to look for a house that isn't a total fixer upper.

But if you did want a fixer upper, there is another program you can use called a 203k.  It's basically a renovation budget that gets rolled into your mortgage. It lets you fund renovations up to $60k.  I never did this, but I heard it's very bureaucratic and tedious.  You have to hire certain 203k certified contractors to do the work.  And the loan could take a very long time to close.

Personally I think buying a multi family is the only way a low down payment purchase makes sense financially.  You are in essence buying an investment property for as low as 3.5% down. Ordinarily you'd need 25% down for one, so you get some really good leverage.  The best part is, you only have to live in the place for 365 days after closing.  After that, you could move out of the unit and rent it for the rest of your life if you wanted.