The Importance of Learning Real Estate Finance: A Beginner’s Guide for the Boston Market

Ricardo Rodriguez & Associates|June 5, 2023
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When buying a home in Boston, the best part is the actual house hunting. It's easy to get wrapped up in the spectacle and leave the rest to attorneys and real estate professionals. Even though the experts have it covered, understanding and analyzing the financial aspects of buying a home is a skill every homeowner should possess. Below, we’ll take a look at the Boston luxury real estate market in-depth so that when you’re ready to purchase a home, you can do so with confidence.

The basics of real estate finance

Analyze the Boston market

Becoming familiar with the condition of the current real estate market will give you a firmer grasp of the indicators affecting home valuations in the Boston area. Boston has a booming economy and is an intellectual powerhouse. As the home to multiple prestigious colleges, innovative startups, and renowned medical facilities, the property value in Boston continues to increase every year.

Even with recent increases in mortgage rates, Boston’s housing market is strong, with low inventory sparking healthy competition between bidders and tempting the most resistant sellers to consider off-market offers. With a median property value of $581,200, Boston invites residents that are keen on urban living in the big city.

Property values will differ depending on the neighborhood, with homes in Back Bay, Seaport, and Beacon Hill being some of the most expensive in the area. Consider these factors when searching for the Boston community you want to settle into. If you spot a home you’d like to bid for, examine other homes in the area and the price they recently sold for to create a reasonable offer.

Review your neighborhood of choice

After conducting a broad analysis of the Boston real estate market, look closer at the neighborhood you intend to move to. For example, the Back Bay area is bolstered by its walkability, proximity to luxury shopping on Newbury Street and the Prudential Center, and timeless Victorian Gothic and Second Empire estates, so it is very likely the property value would excel far greater than in neighborhoods like Fenway, which is more of a college-student saturated location. At the same time, it is worth noting that homes in a historic district may require pricey insurance premiums that push the property out of your budget range.

Get comprehensive property value data

Following your initial assessment of the Boston housing market, examine valid comparables of your ideal home in your chosen Boston neighborhood. Talk to your real estate agent to get an organized version of this data to review and see what they think the property is worth. An educated real estate professional has years of buying and selling history behind them. Because they have been working in the area for a while, they understand the local market trends and fluctuations well. Consider their assessment and include that in your personal evaluation of properties you’d like to explore.

Choosing financing options

Cash financing

There are a few ways you can choose to pay for your home, and cash is an option that benefits the seller as much as the buyer. Cash offers work well against mortgage-based offers because they are liquid and assured; mortgage financing has the risk of falling through, but the cash is already there and accounted for. Some sellers may even accept an offer below the listing price due to the ease of a cash sale. If you have cash available, you will have to obtain proof of funds from your bank and issue it to the seller to verify your ability to pay.

Private lender financing

This loan option comes from a lender not associated with a bank or financial institution. This tends to be more flexible than bank financing since private lending is managed by an independent lender that isn’t bound to company guidelines and requirements. Private mortgage financing is best for home buyers that want to avoid long approval processes or high-interest rates from banks. However, these loans have some risks, as they do not have the same protections bank lenders provide and could make taking out a future bank loan more difficult.

Bank financing

With this lending option, you borrow money directly from a bank to fund your home. The home you are purchasing is used as collateral if you cannot repay the loan. You agree to pay back the original loan amount plus interest over a fixed period of time, the most common being a 30-year plan. Financing with this route has certain requirements, like a credit score threshold and insurance necessities. The bank will also require a home appraisal to determine the home’s value. It is a necessary procedure to mitigate the risk of owing more than your home is worth, thus creating negative equity.

Understanding property taxes and other real estate expenses

The listing price isn’t the final price you will pay for your home. When you purchase a house, a down payment is required, which is usually between 3%-20%. Down payments of less than 20% for a home financed with a traditional loan must be protected by mortgage insurance, which will be added to your monthly mortgage payment.

Property taxes tend to be an expense people forget when assessing what they can afford in a home. Depending on which lender you choose for financing, the cost of property taxes and applicable fees will be incorporated into your monthly mortgage payment. For example, the approximate annual property tax of a $1.5 million home in Suffolk County would be $11,700 annually. Homeowner’s Association (HOA) also fees vary significantly depending on your community.

Closing costs are also something to consider; you will end up paying 2%-5% of the final selling price once all is said and done. These costs include the listing agent commission fee, legal fees, mortgage insurance, and appraisal fees.

Put your money where your house is

Now that you’ve gained insight into the Boston real estate market, you have all the resources you need to successfully analyze the comps in your area and find your ideal slice of real estate. If you require assistance in other aspects of the home buying and selling process, you can turn to the specialists on our team with any real estate concerns. Call us today for a thorough introduction to the Boston luxury real estate market.

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