The Complete Guide for First-Time Home Buyers in Massachusetts Roger Odoardi A stately three-bedroom colonial near downtown Salem. A cozy beach cottage close to the shore in Scituate. A warm, wood-paneled cabin with country views in Sandisfield. A two-story family home in the heart of Somerville. What do these things have in common (other than all being located in towns that start with the letter “S”)? Any one of them could be the perfect first home for you. If you’re a first-time home buyer in Massachusetts, the world is your oyster. With its rich history, unique culture and beautiful seasons, the Bay State is truly a great place to live. And with such a stunning variety of ecosystems — mountain views, miles of coastline, bustling cities, sleepy hamlets and more — there really is something for everyone. But before you can find a place to call your own, there are a few things you ought to know. Are you a first-time home buyer in MA? If so, read on to find out how to make the process of finding — and financing — your future home a little easier. Step 1: Assemble Your Team Like the Avengers, you’ll need to assemble your own team of dynamic individuals to help you find your dream starter home. But, rather than superheroes, your team should consist of a realtor, a real estate attorney and a mortgage broker who can all work together in perfect harmony. Buying a home can be a challenging process, so it’s in your best interest to work with seasoned professionals who can leverage their knowledge and experience to ensure that it goes as smoothly as possible. From choosing a mortgage product to choosing a property, your broker, realtor and attorney should put your needs first every step of the way. Step 2: Explore Your Options FHA, USDA, VA, Conventional, Jumbo — with so many loan options to choose from, it can start to feel as though you’re in over your head. It’s important to keep in mind that not all mortgages are made alike, and that certain options will likely be a better fit for your unique needs than others. Let’s take a closer look at the loan types available to first-time home buyers in MA: Loan Type Description Benefits FHA A type of low down payment government loan insured by the Federal Housing Administration, a program office of the U.S. Department of Housing and Urban Development. Low down payment Flexible credit review Fixed or adjustable rate Limited closing costs; seller can help pay closing costs No prepayment penalty Available to individuals with low credit scores or no credit history Special 203(k) program for home repairs USDA A type of government loan insured by the U.S. Department of Agriculture’s Rural Housing Program that enables low- and moderate-income households to purchase property in eligible rural areas. No down payment required Low mortgage rates 100% financing Reduced monthly mortgage insurance Closing costs can come from a gift Easy to qualify for VA A loan provided by a private lender and guaranteed by the U.S. Department of Veterans’ Affairs in order to make homeownership more affordable for veterans. No down payment No cash reserves No application fee No monthly mortgage insurance premiums Funding fee may be financed Seller can help pay closing costs Low interest rates Conventional The most common type of loan, conventional mortgages are private-sector loans that follow the guidelines set by Fannie Mae and Freddie Mac. Borrowers can choose between 15-year, 20-year and 30-year mortgages. Low down payment No upfront mortgage insurance Potential for lower mortgage insurance rates or no mortgage insurance at all Stable interest rates More appealing to sellers Shorter underwriter approval process Jumbo (Non-Conforming) Any mortgage that exceeds the conforming lending limit of Fannie Mae or Freddie Mac Borrow more than a conventional or government-backed loan Potential for lower mortgage insurance rates or no mortgage insurance at all MassHousing Backed by the Massachusetts Housing Finance Agency, this loan is designed to make it easier for Massachusetts residents to buy or refinance a home. Low down payment Down payment assistance up to $12,000 Mortgage insurance job loss protection Low-cost mortgage insurance options Loan options for veterans and active-duty military Step 3: Look for Available Programs & Grants A number of different organizations and associations offer grants to supplement your mortgage and make it easier to afford your down payment. These include: The Good Neighbor Next Door initiative, funded by the U.S. Department of Housing and Urban Development (HUD), is designed to “encourage renewal of revitalization areas by providing an opportunity for law enforcement officers, firefighters, emergency medical technicians and teachers to purchase homes in these communities.” Qualified first-time home buyers in MA who agree to live in the property for at least 36 months are eligible for a 50% discount off the list price of homes available in the HUD’s inventory. Fannie Mae’s HomePath ReadyBuyer Program was created “[break] down the home buying process into easy-to-grasp lessons online”; buyers who participate in the program are eligible for up to 3% closing cost assistance toward the purchase of a HomePath property. The HUD Dollar Homes initiative “helps local governments foster housing opportunities for low-to-moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.” The National Homebuyers Fund offers Down Payment Assistance (DPA) (and/or closing cost assistance) up to 5% of the mortgage loan amount for home buyers in all 50 states. Many states offer their own first-time home buyer programs and grants; to see which ones are available in Massachusetts, contact your city or town officials or look at HUD’s list of home buying programs by state. Step 4: Get Pre-Qualified Once you’ve determined which loan type makes the most sense for you, the next step is to apply for mortgage pre-qualification. Although it isn’t a mandatory stage of the mortgage application process, pre-qualification can be helpful because it gives you an estimate of how much money you’re approved to borrow before you begin your house hunt and it makes a seller more likely to accept your offer. In order to receive pre-qualification, you need to submit the following to the lender: Proof of income Employee verification letter Pay stubs from the past two months IRS W-2 forms and tax returns from the past two years Proof of assets Savings account 401(k) Stock dividends Investment account statements Your tri-merge credit report Your debt-to-income ratio Note that being pre-qualified does not necessarily mean that you’ve been approved for a mortgage; you’ll still need to go through the standard loan application process in order to actually secure funding. This means you aren’t obligated to work with the lender that pre-qualifies you and can, in fact, shop your pre-qualification around to other lenders to get a better deal. A mortgage broker can be an invaluable asset here because they can act as a liaison between you and lenders. Get Prequalified Today! Step 5: Start House Hunting We’d like to say that this is the easy part but, at Blue Water, we’ve worked with enough first-time home buyers in MA (and other states) to know firsthand that finding the perfect home can be exciting, yet grueling. To streamline your search, there are a few things you should consider before you book your first viewing: What is your budget/how much home can you afford? Would you prefer to live in the city, the suburbs or somewhere more rural? What type of property are you looking for? (e.g. a single-family home, a duplex, condo, townhome, a co-op, etc.) How many bedrooms and bathrooms do you need? (Be realistic — there’s no sense in saying you need eight bedrooms when, realistically, you only need three.) What are your must-have features in a home, and which features would simply be nice to have? What is important to you? (e.g. a good school district, proximity to work, room to grow, etc.) Keep in mind that every house hunt comes with certain tradeoffs, but having a clear idea of what you want will make the process easier and better set you up for success. When you start viewing homes, be sure to test the plumbing and the electric system and look for structural issues, water damage and mold. FindLaw offers a great home evaluation checklist to help you get started. Step 6: Make an Offer So you’ve found a home you love and you’re ready to make an offer — now it’s time to figure out how much you’re actually willing to pay for it. List prices aren’t set in stone, and there’s room for your realtor to negotiate with sellers based on the home’s location, how long it’s been on the market and whether it requires any repairs or upgrades. You’ll want to schedule an official home inspection within a few days of submitting your initial offer; a home inspector can provide a definitive report of any pre-existing issues with the home, which you can use to renegotiate your offer — or, in the worst-case scenario, withdraw it. Step 7: Apply for a Mortgage Once you’ve submitted your final offer, you have 90 days to apply for a mortgage. The good news is, if you completed Step 4, you’re already prequalified, which puts you in good shape. At this point in the process, you’ll want to bring in your mortgage broker. Your broker will guide you throughout the mortgage application process and will act as an official liaison between you and lenders. Although it’s possible to work with your bank to apply for a home loan, mortgage brokers work with a wider variety of lenders, offer more personalized customer service, are able to leverage a broader network of connections, typically have a lower overhead and are dedicated to negotiating favorable mortgage terms for you. Once you’ve applied to your lender of choice, an underwriter will review your application to determine your ability to repay your debt based on factors such as credit score, credit history, employment history, income stability, debt-to-income ratio, assets and so on. The underwriter approval process is similar to the pre-qualification process. Based on their findings, the underwriter will either approve, deny or suspend your application. If approved, you can move on to Step 8, which will take you one step closer to total approval. If suspended, the underwriter likely needs more information before they can proceed; it falls upon you to provide the information requested. If denied, don’t panic — the underwriter will clearly explain why your application was rejected, so you can work with your mortgage broker to resolve this issue and apply again. Step 8: Obtain a Home Appraisal Underwriters require borrowers to receive a home appraisal from a lender-approved appraiser before they issue their final mortgage application approval; this appraisal gives the lender an objective idea of the home’s value and ensures that the home owner doesn’t over-borrow. At this step of the process, the appraiser will review: Current market trends The general condition of the home Square footage The number of bedrooms and bathrooms Additional space (e.g. basement, attic, crawl space) Building materials Foundation type Home improvements, upgrades and added amenities Neighborhood characteristics Lot size Recent sales of similar properties Once the appraisal is complete, the appraiser will submit their findings to the underwriter for final review and approval. At this point, your mortgage broker will work with the lender to lock in your interest rate prior to closing. Step 9: Close on Your Home At long last, you’re ready to close on your new home. During closing, your broker will work with you to review and sign all loan documentation, and you’ll be responsible for paying closing costs, which could include an appraisal fee, an origination fee, legal fees, title search and insurance, escrow fees and more. How much you pay in closing costs will vary based on your mortgage option, loan amount, the type of property you purchase and its location; depending on which loan type you chose, you may be eligible for options to offset closing costs, such as monetary gifts from family and friends. — Congratulations! It’s been a long journey, but you’ve on track to finally make the transition from first-time home buyer to first-time home owner. We hope this guide has been helpful and that you enjoy making your new home your own and exploring all that Massachusetts has to offer. If you have any additional questions about becoming a first-time home buyer in MA, check out the FAQ below or contact Blue Water directly for more information. FAQ for First-Time Home Buyers in MA How much money do I need to put down on a house in Massachusetts? If you qualify for a VA or USDA loan, you’re eligible to put no money down; if you qualify for a conventional loan, you can put as little as 3% down. How much is the average PMI for MA? PMI will fluctuate based on your credit score and down payment; use a fact of 0.7% for a good ballpark. For example, on a $100,000 loan, multiply $100,000 by 0.7% for a $700 annual cost, or $58.33 a month. How can I get approved as a first-time home buyer in MA? The first step is to talk with an experienced loan officer who can answer all your questions and walk you through the prequalification process. Get Prequalified Today!