Top 5 First Time Home Buyer Questions Answered

March 17, 2023, By: Susan Kadilak

As a Massachusetts real estate agent with over 20 years of experience, I’ve helped many clients buy their first home. I’ve fielded lots of questions over the years about the home buying process in Massachusetts, and here are the top 5 questions I’m asked by first time home buyers.

Click below to watch the video!

1: How much money do I need for a down payment?

A: Although we commonly hear that you need 20% down to buy a home, that’s not always realistic, especially in Massachusetts where our housing is so expensive. It’s actually pretty rare to see a first time buyer put down 20%. According to the National Association of Realtors, the average buyer put down 7% on their first home. There are many loan products available to first time home buyers that start at just 3.5% down (or 0% down if you are a qualified Veteran), so it’s important to take a look at all of the options.

2:How much are closing costs?

A: Closing costs are made up of fees, escrows, and payments that typically include (but are not limited to) appraisal fees, credit report fees, title insurance, escrows for taxes and insurance, attorney fees, underwriting fees, flood certificate, and more. The total amount of your closing costs are typically between 2% and 5% of the loan amount, but can vary depending on what type of loan you are using. It is important to get a Good Faith Estimate from your lender so that you have a full understanding of the breakdown of costs and how much cash you will need to close on your home.

3:How long does it take to find a house and close?

A: There are two phases to the home buying process that you want to keep in mind when planning out your move: House Hunting and Contract to Close.

House Hunting:  According to the National Association of Realtors home buyers typically searched for 8 weeks and viewed a median of 8 homes.

Contract to Close:  Once you have an accepted offer on a home it typically takes 45-60 days for the closing to happen.

4: What if the house fails inspection?

A: For most buyers, the biggest fear is the home inspection and what happens if things go wrong. It’s important to remember that here in Massachusetts we are dealing with older, used homes, so there is almost always a very long list of maintenance and other items that are sure to give you heart palpitations! It’s important to take a deep breath and assess what the issues are and the best way to address them. Sometimes, this means that the seller will agree to repair something prior to closing or give you a credit so that you can do the repairs yourself once you own the home. Other times, it means that the home inspection issues were a deal breaker. In that case, you can back out of the deal as long as you are within the parameters of your contract, and then get your initial deposit back. You would not recuperate any costs paid for inspections done on the home.

5:How can I get a good deal?

A: Every home buyer is looking for a good deal and here are some tactics that can help you make a smart home buying decision:

1. Look at homes that have been on the market for a while. Just because a home doesn’t sell right away that doesn’t always mean that something is “wrong”.  Chances are that there will be less competition, which puts you in a better position to negotiate a favorable deal.  
2. Good bones are a better investment than cosmetics. Things like an upgraded electrical panel, newer roof, or a new heating system are not very sexy; but they cost real money if they need to be replaced, and they often don’t give you a dollar-for-dollar increase in value. Homes with cosmetic upgrades often command more money because many home buyers will pay more for pretty things! If you keep an eye out for good bones and are willing to put in a little sweat equity you may find yourself a hidden gem!

Susan Kadilak is a licensed real estate agent based in Burlington, MA. She prides herself in providing the best home buying and home selling services to her clients and has over 20 years experience in the real estate industry.

Middlesex County Massachusetts Market Update | March 2023

What is happening in the housing market and what can you expect if you’re thinking about buying or selling a house this year?  The headlines seem scary, but here is a breakdown of what we are seeing in our local market.

Click below to watch the video!

Interest Rates:

Rapidly rising interest rates, which more than doubled by the end of 2022, created instability and rocked the housing market.  As a result we saw fewer buyers in the real estate market because many either no longer qualified for a loan or were forced to lower their budget.  

February 2023 started off with rates hovering around 6%, but by the third week in February rates were up nearly three quarters of a point to about 6.75%.  On a $650k mortgage that’s a difference of over $300 a month!

Right now, in real estate, we are seeing activity pick up when rates are closer to 6% and slow down when they inch towards 7%, so we are keeping our fingers crossed that rates don’t creep too high!  But, the Feds are signaling that they plan to continue to raise rates to try to tamper inflation, so anything can happen.  We will keep watching.

How long are homes taking to sell?

The year to date numbers show that homes were on the market for an average of 23 days before accepting an offer in 2022.  This year, in 2023, it’s taking an average of 33 days. So, while homes are taking longer to sell, 33 days is still really fast and is considered to be a seller’s market.  

Are prices dropping?

Even though rates are up and homes are taking longer to sell, sales prices have still gone up by a few percentage points when compared to last year. That’s a much more normal pace than the double digit increases we saw during the pandemic years. I suspect that as we head towards the spring market and compare prices against last year’s peak we will see a bit of a price correction in the year over year numbers, but nothing drastic. 

Will more houses come on the market?

Although inventory is up (526 homes on the market on 2/23/23 versus 303 the year before), it’s still not close to the number of homes we had on the market in the pre-pandemic years (873 in 2020).  So, while there are more homes on the market we still don’t really have enough, which is why prices have been staying strong.

DATA GATHERED FROM MLS PIN ON 2/23/23

In addition we are also seeing a “locked-in” effect that’s keeping inventory low and preventing many would-be home sellers from listing their property.  Almost 90% of homes with a mortgage in Massachusetts have an interest rate below 5%, which means that in order to move that homeowner is facing both a higher purchase price and a higher interest rate.  For many, the cost of moving out of their low locked-in payment just isn’t feasible and they are stuck in their homes.

What are buyers doing?

If you are a home buyer you might want to consider loan products like an Adjustable Rate Mortgage, rate buydowns (either temporary or permanent), or first time home buyer programs like the AMI 120.  Creative use of financing options and/ or closing costs credits can help make your home purchase more affordable.

Are Home Prices Dropping in Massachusetts?

The Feds have been hastily raising interest rates to tame out of control inflation over the last year, and it seems like there’s only bad news going around about the real estate market.  Some of the headlines talk about the Great Recession and everyone is wondering if we will see another crash. This talk has been welcoming news for some home buyers who have been hoping for prices to drop and bidding wars to be a thing of the past… but what is really happening?  

The 30 Year Fixed Rate Doubled Last Year

Last year, in 2022, the 30 year fixed rate doubled from 3.22% at the beginning of January to 6.42% at the end of December. This swift rise quickly knocked many would-be homebuyers out of being able to qualify for a mortgage, and in some cases we saw that happen over a weekend. Volatility like this creates uncertainty about what the future will bring, so many buyers and sellers naturally pull back to “wait and see” what will happen.

Even though the super low rates and crazy bidding wars we saw during the pandemic years did not reflect a normal, sustainable market, it will still take some time to adjust to what a “new normal” will look like.  

Since the peak interest rate of 7.08% last November, interest rates have been generally going down and recently fell below 6%. This downward trend helps create the stability and confidence needed for buyers and sellers to return to the marketplace without fearing that they will suddenly be told that they no longer qualify for financing.

Inventory and sales are down 

There were 8% fewer homes listed for sale in Middlesex County, MA, in January 2023 versus last year, but the actual number of closed sales was down by a whopping 31%, which more than makes up for the lower inventory. Plus, homes are sitting on the market longer this year. It took an average of 33 days for a seller to accept an offer versus only 23 days last year.

So, fewer homes for sale + even fewer buyers + more time on the market = home prices dropping, right? Not quite! In the same month over month comparison, sale prices went up by an average of 6% in Middlesex County. But, why?

Slowing Down Versus Going in Reverse

1. It Is Still A Seller’s Market:

Imagine you are going down the highway at 110 mph while you are in a 65 mph zone.  Then you slow down to 85 mph. Even though you slowed down you are still speeding. Whenever homes are selling in less than 4 months it is considered to be a seller’s market.  In the past year we saw the amount of time it takes for a seller to accept an offer go up from 23 days to 33 days. So yes, the headline is that it’s taking longer for homes to sell, but the market in most cases still favors the seller.

Home prices rose 6% over the last 12 months. During the pandemic years we were seeing home prices increase by 10-15%+ annually, so the pace has slowed down quite a bit.

2. The “Lock In” Effect

During the Great Recession I saw many homeowners locked into their homes by negative equity and crazy mortgage products. Today we are seeing homeowners locked into their homes by the low interest rate they either bought or refinanced with during the pandemic years.

In Massachusetts 68.5% of homes have a mortgage and 87.7% of those homes have an interest rate below 5%. These homeowners are hesitant to sell because moving means getting hit with both higher prices AND higher interest rates. Many cannot afford to absorb the increased cost and so many are choosing to either stay put or to just keep their low rate, high equity property as a rental. This “lock in” effect has been, and will continue to be, a major factor in low inventory rates which are helping to keep prices strong.

3. There Are More Buyers Than Homes

Even though fewer sales are happening, and many buyers have been priced out of the market, we still simply don’t have enough homes for sale. In certain price points and locations we are still seeing bidding wars and buyers waiving contingencies. 

What Does All This Mean?

If you are a buyer, there are many tools out there that can help you land the right property at a comfortable mortgage payment, including things like ARM loan products and seller paid closing costs (Click Here to read about how one of our clients used a $20k closing cost credit).  Remember, even though it’s a seller’s market that doesn’t mean that you have to waive everything and give up your first born to get a house.

If you are a homeowner that is considering moving up or downsizing you’ll want to run through all of the potential scenarios to figure out what makes the most sense for you. This may include renting, renovating, rebuilding, or selling and purchasing a new home.  While the “Gold Rush” may be over, and more patience is required, there are still ways to make your move possible.

Source: MLS PIN, Keeping Current Matters

How we got a $20,000 credit for our client on a new construction home!

For anyone thinking of buying or selling a home this year, it’s no secret that rates have skyrocketed and buying a house became more expensive.

If you bought an $800,000 home with 20% down in January 2022, your mortgage payment would have been $3,055. Today, that same loan would result in a payment of $4045. That’s a huge difference!

With such a large increase in such a short period of time, many would-be home buyers have been forced to sit on the sidelines, resulting in fewer home shoppers in the marketplace.  Those who are still in the market for a home are feeling the squeeze from all sides right now, so finding ways to lower that monthly payment can help ease the pain.

We recently had a buyer client at a standstill in negotiations with a seller because even though our client really wanted the property, (and I mean REALLY wanted it), they could only offer a certain amount and still have a comfortable monthly payment. That amount, of course, was less than what the seller was willing to accept.  During our conversations, the client commented, “If the rates were even close to what they were a few months ago, I would have no problem offering more money!”.

After crunching some numbers and talking to our lender, we came up with a way to be able to offer more money – but there was a catch. We would need the seller to agree to contribute $20,000 toward closing costs in order to be able to secure a rate buydown. There are a few options when it comes to buying the rate down, both temporary and permanent.

By using the rate buydown tool, we were able to come up with a solution that: 1.) netted the seller more money, 2.) allowed our client to obtain a comfortable monthly payment, and 3.) made the home within reach. Rate buydowns can offer long or short term savings depending on the product you choose. It is important to consider the upfront cost and discuss the details in depth with your lender to determine whether or not it’s the right option for you.

Are you thinking about buying or selling a home?  Schedule a quick 15 minute phone call:

https://calendly.com/krgconcierge/15min?month=2023-01

Attend one of our upcoming events: 

https://www.eventbrite.com/o/susan-kadilak-amp-team-kadilak-realty-group-16824446458

Kadilak Realty Group is excited to announce that a full calendar of events is back for 2023!

1. A Spring and Summer "FIRST TIME HOME BUYER CLASS" will be held to answer your most burning questions about what it's actually like to go through the home buying journey.

Event dates:  Tues, 3/24 and Tues, 10/24

2. NEW!  And by popular demand, our new "REAL ESTATE INVESTING" class will explore how to get started in real estate investing, different types of investing, and how to decide whether or not it's right for you.

Event dates: Wed 5/3 and Tues 11/7

HOLIDAY EVENTS:

2023 Santa Party:  Sunday, December 3, 2023

2023 Holiday Home Tour:  Tuesday, December 5, 2023

Follow us on Eventbrite for details!

Middlesex County Real Estate News & Market Trends

You’ll find our report to be a wealth of information, covering everything from local market statistics and home values to current interest rates. Please reach out if you have any questions at all. We’d love to talk with you!

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