It seems every conversation about Boston’s status as a world class city makes some mention of our high cost-of-living. The same discussions inevitably cite the price of real estate as one factor, as significant as any other, for why many young professionals choose to move or settle elsewhere. Add to that the news that Millennials have passed Generation X and the baby boomers as the group least able to afford their basic needs and you have an unfavorable recipe for keeping our best and brightest in Boston.
Yet if you’re towards the beginning of your career, likely with a moderate amount of student loan debt, negligible savings, and a desire to only live in one of the city’s most sought-after neighborhoods, Boston is actually one of the best cities in the country to purchase a condo. But how?
The answer is a little-known program that pairs a combination of public and private benefits to enable low- and middle- income first-time homebuyers to afford to purchase units in newly constructed luxury buildings. In Boston. Yes, this Boston.
Many believe that affordable home programs are aimed only at those willing to live in government-run, government-built housing. Yet the answer to that solution-of-the-past can be found in Boston’s Inclusionary Development Program (IDP). The IDP is a 12-year-old initiative of Mayor Thomas M. Menino and the Boston Redevelopment Authority to set aside 13% of all units in newly constructed market-rate buildings with 10 or more units for individuals with incomes below $54,750 (80% of the area’s median income), $68,450 (100% of AMI), or $82,150 (120% of AMI) depending on the unit. When I was looking to buy in 2010 I was only concerned with my household of one, but it should be noted the program adjusts those income levels for households of up to eight people.
In addition to merely setting aside the units, the IDP restricts the sale price of the units. A typical one bedroom apartment, most with highly coveted addresses, high-end fixtures & appliances and a market value in excess of $300,000, cannot be sold by the developer for more than $167,900. Once the development project is complete a lottery is held for qualified applicants with the winners having to complete a city income verification before proceeding to a traditional financing process.
After being faced with odds no better than 1 or 2 out of 100 for the first few lotteries I entered myself, my attention turned to the re-sale component of the program. The city’s development arm places deed restrictions on re-sale of the units that requires purchasers to only sell to other income-qualified individuals. Given the first-come, first-served nature of this part of the program, I quickly found a one-bedroom condo I loved in a five-year old building steps away from Fenway Park.
While the IDP had delivered me a unit I could theoretically afford, financing the deal became the next hurdle. With law school loans to pay and little in the way of savings, there would be no way to make the traditional 20% down payment. That’s again where city and state first-time homebuyer programs stepped in. The program works with most traditional lenders who operate in Massachusetts and only requires a 3% down payment – 1.5% out-of-pocket, 1.5% from the city – with another 1.5% provided by the city for closing costs. Further, most private lenders will offer those who income qualify for the IDP a well-below-market 30-year fixed interest rate – mine was 3.5% – with no points and a soft-second mortgage on 20% of the loan that only requires interest payments for the first 10 years.
With a little paperwork perseverance, it was a deal I could not refuse. Yet there was still more support to be had. The IDP also requires a similarly discounted condo fee rate, lowering my unit’s fee to $110 per month from what should have been well over $200. Add in Boston’s attractive property tax abatement on the first $125,000 in appraised value to all homeowners who consider their Boston home to be their primary residence and you save another $1,500 off living somewhere without the program.
All told, I saved tens of thousands of dollars by opting to purchase a condo in Boston versus relocating somewhere with a “lower” cost-of-living. And it was certainly the tens of thousands of dollars I needed to afford to buy at all. (It also did not hurt to be saving money to own as compared to my rather expensive monthly rent in the Back Bay.)
The moral is that Boston has made great strides at identifying ways to help low- and middle- income individuals, oftentimes young professionals, afford to own property in the heart of the city. Without some or all of the programs above I would not have realized the dream of homeownership until much later in life and might have been discouraged from setting down roots in a city traditionally known for prohibitively expensive real estate. It’s a label we should begin to shed as us Millennials take advantage of those trying to help us.
Michael J. Nichols is an attorney and real estate buyer’s agent in Boston. He can be reached at firstname.lastname@example.org.
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