Buying a House in Massachusetts: The 9 Step Process (Updated For 2024)

Homeowners in Massachusetts live in some of the country’s most charming and vibrant communities. From the historic streets of Boston, with its rich cultural heritage and top-notch educational institutions, to the picturesque coastal towns of Cape Cod and the serene beauty of the Berkshires, there’s a perfect spot for everyone.

This guide will do two things for anyone looking to buy a house in Massachusetts:

1. Discuss the end-to-end process of deciding you’re ready to buy a home and the first month of home ownership.
2. Give expert strategies (that work in 2024) to help increase your chances of closing on the home of your dreams.

Financial Situation To Buy A House In 2024

The first step in buying a home is examining your financial situation. You need a general idea of how much house you can afford and the likelihood of lender approval.

• Credit Score: Lenders use credit scores to assess the risk of lending to a borrower. The minimum credit score for conventional loans is usually around 620. On a $300,000 loan, a borrower with a 4% interest rate would pay approximately $1,432 monthly, while a borrower with a 5% interest rate would pay about $1,610 monthly. This difference of $178 per month adds up to over $64,000 over 30 years.
• Debt-to-Income Ratio (DTI): DTI measures your monthly debt payments against your gross monthly income. Lenders prefer a DTI ratio of 36% or less, with no more than 28% of that debt going towards your mortgage payment. This ratio helps ensure you have enough income to cover your mortgage and other debts, such as car loans and credit card payments.
• Household Income: Your home cost should not exceed 28-30% of your annual income. This includes your mortgage, taxes, and insurance.
• Down Payment: Down payments can be as low as 3.5% for FHA loans. The recommended down payment is 20% of the home price. According to the LLPA, 25% down is where you get the lowest rate for the best credit score. At 20%, you can avoid PMI.

Massachusetts Housing Market In 2024

The CEO of Redfin recently shared a significant increase in inventory and price cuts, hinting at a surprise for the 2024 real estate market. The median sale price in the US has reached an all-time high, increasing 75% since 2017.

There are whispers that these prices may drop off a cliff this year. All the factors showed this, except for the most important one: inventory. With the recent spike in inventory, we’re approaching the time to buy.

Let’s talk about Massachusetts specifically:

• According to Zillow, the average home price in Massachusetts is $629,177.
• This is an +8.8% increase since 2023.
• Today’s mortgage rates in Massachusetts are 6.906% for a 30-year fixed, 5.893% for a 15-year fixed, and 7.769% for a 5-year adjustable-rate mortgage (ARM).

Step 1: Get Pre-Approved

The pre-approval process involves a lender evaluating your financial situation to determine how much they will lend you for a home purchase. This process gives you a conditional commitment for a specific loan amount.

Apply for your pre-approvals all applications in the same week. A “hard credit inquiry” occurs each time you apply for preapproval, typically reducing your FICO score by less than 5 points. If you get preapproved multiple times within a short period, usually a few weeks, these inquiries are considered as one, mitigating the effect on your credit score.

Spreading out preapprovals over several months can result in multiple small hits to your credit history. You also don’t want to do this because pre-approvals usually last for a maximum of 90 days.

What Mortgage Lender Should You Use?

Our suggestion? Find a good local lender.

For a local lender in Massachusetts, try a credit union, Leader Bank, Rockland Trust, and Cape Cod Five Cents.

From our experience, local lenders are more likely to invest themselves in helping you find the right home and get you the best loan possible. If you already have a realtor, they should be able to recommend a lender.

Step 2: Find a Real Estate Agent

If they’re active in the market, they should find properties before they pop up on Zillow. If you like a house they share, they can go the extra mile by showing you comps for what other homes in the area sold for.

What To Look For In A Realtor

Our #1 tip for finding a good agent is to look for a successful realtor in your market. If they’ve sold and bought homes in your neighborhood, great. They will know what makes the neighborhood unique, and if the homes are similar, they’ll know that, too. 

Questions To Ask An Agent

• How long have you been working in real estate?
• Do you have any professional certifications?
• Can you give me any insights into my situation’s uniqueness? Do you have any expertise in these areas?
• Are you primarily a buyers or listing agent?
• What is your professional network like with vendors?
• How many active clients are you working with?
• What are your fees?
• How many homes have you helped clients buy in the past year?

What A Buyer Agent Should Do For Clients

1. Find properties in their desired area and tour them within 48 hours while pointing out both negatives and positives. Positives help you find your home faster, negatives help you negotiate at closing.
2. Help them navigate the cacophony of people they need to work with to close a real estate transaction—local lenders, inspectors, brokers, title companies, etc.
3. Put their best foot forward at the negotiation table to get the buyer the best deal possible.

Ask the realtor for a comparative market analysis (CMA) or “comps” to understand what your money will buy in your target area. The realtor will look at properties sold in the last 4-6 months from MLS.

Step 3: House Hunting in Massachusetts

House hunting comes down to three factors: location, needs, and budget.  Orchard created a quality checklist to help you determine what factors to look for when house hunting.

We’re going to give you tips on how to house hunt. We hear depressing stories of families that submit up to 100 bids and need up to two years to finally win. 

Here’s some helpful advice:

• Until the market cools down, be comfortable spending up to a few years submitting bids.
• Take your time and find something you like and a house you can work with.
• Ignore headlines and media BS. They do nothing to help your mindset and are often wrong in individual cases.
• Many sellers want to sell to families instead of investors and holding companies. Sometimes, a handwritten letter can do the trick. Homeowners often want to sell to someone that they know will take care of the home like they did.
• Consider renting in the area you want to live for at least six months.

Look For Sellers That HAVE To Sell

Overinflated home prices make selling a home in Massachusetts a profitable proposition. However, home prices are higher specifically because people are NOT selling. People are holding on to their low interest rates. They don’t want to sell, perpetuating the high housing cost cycle. The only people who are selling are the three D’s (death, divorce, debt) and people who have to relocate.

This brings us to our point.

If you can find homeowners who need to sell ASAP, you can get a home for lower than market value.

Step 4: Making an Offer

Three things matter when making an offer

1. Price: Conventional wisdom says to offer 5% below the asking price, but market conditions aren’t conducive to that. Work with your realtor to find a competitive price.
2. Speed: You also want to consider how quickly you submit your offer. Being the first offer can sometimes give you an advantage.
3. Contingencies: Sellers look for the least amount of contingencies

Contingencies

You’re not required to include contingencies in your offer, but it’s almost always a good idea to include at least one to get your earnest money back.

Common contingencies in real estate contracts include:

• Financing Contingency: This allows you time to secure mortgage approval. If for whatever reason you can’t find a mortgage lender, you can walk away.
• Appraisal Contingency: The property must appraise for at least the agreed-upon sale price. If it doesn’t, then you can back out of the contract.
• Inspection Contingency: An inspection contingency to understand the property’s condition. Always include this so you can walk if something bad appears in the inspection. Think twice before waiving your inspection contingency.
• Title Contingency: Ensures the property’s title is clear from liens or disputes. The title company will run a report on the property. You can walk away if there are existing liens that the seller doesn’t settle before closing.
• Insurance Contingency: Some insurance carriers may refuse to cover a home because of its past history or its location like a flood zone. Add this contingency to ensure you’re approved for insurance before closing.

Submit An Offer 

Usually, the real estate agent will write the offer letter, but you can write it. The offer letter will include:

• The amount you’re offering to pay for the property.
• Specify that the seller will provide a clear title and deed to the property.
• Contingencies that must be met for the sale to go through.
• Who will be responsible for the closing costs.
• Projected closing date (typically 30-60 days).
• Deadline for the seller to respond.
• A letter from your lender showing you’re pre-approved for the full amount.
• The amount of earnest money you will deposit (usually between 1-3% of the total purchase price).

Pro Tip: Send the offer as one PDF

If the seller rejects your offer, you can submit another offer or move on to another home. If they went with another offer, have your realtor call their lending agency to ask how many offers they received and how far over asking similar homes sell for.

Step 5: Apply For Mortgage

Pre-approvals are an estimate, not a promise. A pre-approval is a non-binding statement saying that you may be eligible for a loan up to a certain amount based on a review of your financial status. 

Typically, you apply for a mortgage after your offer is accepted. However, in competitive markets, getting loan estimates before bidding can be beneficial. This way, you can compare options and have your lender ready to revise the estimate once you select a property. Pre-underwriting is another option to demonstrate your financial readiness.

Contact at least three lenders to request loan estimates. Some may charge a small fee (up to $30) for a credit report. Inquire about their policies regarding financial changes, as a job change can impact your mortgage approval and closing process.

Choosing the Right Lender

Look for reputable local lenders, including credit unions, as they often provide better service than national or online lenders. Schedule meetings to discuss the mortgage process before making an offer. Ask if they offer a closing guarantee and clarify their stock versus cash assets policies

Consider finding an independent mortgage professional representing multiple lenders who can shop your application around with just one credit pull. This can save you time and potentially secure better rates. Beware of online lenders offering enticing deals upfront but later revealing hidden issues. 

Understanding Your Loan Estimate

You should receive the loan estimate within three business days of your application. Use the Consumer Financial Protection Bureau’s Loan Estimate Explainer tool to navigate the paperwork. Compare the following elements across estimates:

• Annual Percentage Rate (APR)
• Total Interest Percentage (TIP)
• Origination and lender charges (should be 1% or less)
• Points
• Rate lock options (30-60 days, with potential for a float-down option)

Rate Lock Considerations: A rate lock can stabilize your interest rate, protecting you if rates rise. However, if rates fall, you could miss out on savings. Most experts recommend locking in your rate.

Step 6: Appraisal

The appraisal process occurs after you’ve expressed your “intent to proceed” with a lender. This step involves a professional appraiser assessing the property’s market value, typically costing between $500 and $1,000, with VA appraisals ranging from $400 to $900.

Banks require appraisals to ensure the loan amount aligns with the home’s market value, protecting their investment. An appraisal contingency allows buyers to back out or negotiate the price if the appraisal is lower than the offer without losing their earnest money deposit.

Step 7: The Inspection Process

After an offer is accepted, you normally have 10 days (or whatever is in the contract) to get an inspection done. If something isn’t up to par and you would like it fixed, you can ask the seller to take care of it.

If they say no, you can walk away and void the offer contract with your earnest money returned.

Don’t go overboard here!

Also, when you do pull the trigger, hire your own inspector. DO NOT go with someone your realtor recommends.

In Massachusetts, an inspection should cost between $500 to $1,500. This will depend on the size of the home, age, and additional add-ons like radon and mold.

Massachusetts-Specific Home Requirements

• Title 5 Inspection: Massachusetts requires a Title 5 inspection for properties with private septic systems. This inspection ensures the septic system meets state environmental standards and must be done before selling a property, expanding its footprint, or building additional bedrooms.
• Lead Paint Law: Massachusetts requires homes built before 1978 to be inspected for lead paint. If lead is found, it must be disclosed, and landlords must remove or cover lead paint hazards if a child under six resides in the property.
• Smoke & Carbon Monoxide Detector: Before a property can be sold, it must pass an inspection to ensure compliance with Massachusetts’ smoke and carbon monoxide detector regulations. Certificates from local fire departments are required at closing.
• Transfer Tax (Stamp Tax): Massachusetts imposes a real estate transfer tax on property sales, commonly known as a stamp tax. The tax rate is $2.28 per $500 of the purchase price, paid by the seller at closing.

Step 8: Homeowners Insurance

Homeowners insurance is mandatory if you have a mortgage and must be in place before closing. This insurance covers various risks, including damage from fire, theft, and natural disasters, as well as liability for accidents on your property.

Standard policies often include dwelling coverage, personal property coverage, liability protection, and additional living expenses if your home becomes uninhabitable.

There are different levels of coverage, such as:

• HO-1: Basic policy covering specific perils.
• HO-2: Broad policy covering more perils than HO-1.
• HO-3: Special policy that covers all perils except those explicitly excluded.
• HO-5: Comprehensive policy offering the most extensive coverage.
• HO-6: Condo insurance.
• HO-7: Mobile home insurance.
• HO-8: Older home insurance.

By comparing different policies and providers, you can ensure you get the best protection for your new home.

Step 9: Closing And Walkthrough

The final walk-through typically occurs on the closing day to ensure the property is in the agreed-upon condition. During this inspection, confirm that all personal items have been removed unless specified otherwise in the contract, and check for any new damages. Conduct the walk-through during daylight hours for better visibility. 

Be thorough with your last walk-through inspection:

• Flip all switches
• Turn on faucets to check for leaks
• Run all appliances
• Test the garage door opener
• Open and close all doors
• Flush toilets
• Run the garbage disposal and exhaust fans
• Inspect ceilings, walls, and floors.
• Test the heating and air conditioning systems.

At The Closing Table

You will review your Closing Disclosure form at closing, which you should receive three business days before closing. Compare it with your Loan Estimate to check for major changes or inconsistencies. Some fees are legally restricted from increasing by more than 10%.

Consider having a real estate attorney review these documents if desired.

On closing day, meet at the title company. Being on time is crucial, as appointments are often scheduled back-to-back. Bring your photo ID, a cashier’s check (if required), Closing Disclosure, and any other requested documents. 

During the closing, you will sign several key documents:

• Closing Disclosure: Details all the costs and fees associated with your mortgage, received at least three business days before closing for review and comparison with your Loan Estimate.
• Promissory Note: A legal document where you agree to repay the loan amount over a specified period, including the interest rate and payment schedule; your promise to pay back the loan.
• Mortgage (or Deed of Trust): Secures the promissory note and gives the lender a claim against your home if you default on the loan; outlines the mortgage terms, including the loan amount, interest rate, and repayment terms.
• Deed: Transfers property ownership from the seller to you; includes a property description and is signed by the seller.
• Settlement Statement (HUD-1 or ALTA): Provides a detailed list of all costs associated with the home’s sale, including buyer and seller costs; reviewed and signed by both parties.
• Affidavits: Various affidavits may be required, such as confirming your identity, stating the property will be your primary residence, or ensuring no undisclosed liens or judgments.
• Title Documents: Ensure you receive clear title to the property; may include documents related to title insurance, which protects you and the lender against potential legal issues with the property’s title.
• Initial Escrow Disclosure: This document outlines the escrow account details, including the amount you need to deposit and what it will cover (e.g., property taxes and insurance).
• Loan Application: Review and sign a final version of your loan application to confirm that all information is accurate and up to date.
• IRS Form W-9: Used to provide your taxpayer identification number to the lender for reporting interest paid on the mortgage.
• Homeowners Insurance Verification: Proof that you have secured homeowners insurance for the property, typically required by the lender.