So you’re thinking about buying your first home in LA – congrats!! Buying is so exciting, nerve-wracking and also probably a bit stressful, but still very exciting, especially when it’s your first time. As an agent, I get asked all the time about what this process looks like, what you can do to prepare, etc. so I wanted to answer some of my most frequently asked questions. And if you’re not quite ready to buy, be sure to save this one for later!
Before I dive, a quick disclaimer: I’m an agent, not a lender of course, but I’ve tried to answer all of your financial-related questions as best as possible. If you are shopping for a home it’s always great to reach out to a few banks and see what options are available to YOU personally – as one size does not fit all.
Q: Can you still buy with bad credit if you put a lot of cash down?
A: Depends on how bad your credit score is and also depends on the type of loan you get. If it’s a jumbo loan, there’s really nothing you can do about bad credit as they’re really strict. Conforming and FHA loans are more lenient but your interest will be affected by your credit score (it will likely be higher if you have a low score). You’ll also likely run into higher mortgage insurance premiums. Generally speaking, a credit score below 620/640 will make it more difficult to get a loan regardless of the amount you put down in cash.
Q: What are the biggest unexpected expenses?
A: Closing costs and repairs! Closing costs are typically around 2% of the purchase price and then during inspections you may find out that the property has some deferred maintenance and is in need of some repairs. Your agent should negotiate on your behalf for the seller to give a credit back, contribute more towards closing costs, or a reduction off the purchase price. But if you close without a renegotiation you may have to pay out of pocket for any repair expenses so be sure to do your due diligence!
Q: How much do I need to save before being in a position to buy?
A: This is dependent on your expenses. Most banks will want to see a 30-40% debt-to-income ratio. Here’s a way to come up with a budget: take your current expenses and add it to all your potential mortgage expenses (or PITI, which means principle, interest, taxes and insurance). Divide that total (monthly expenses + mortgage expenses) into your gross monthly income. The total calculated number should be under 43%. Some programs will go higher but this is a good place to start when trying to figure out how much house you can afford and therefore what you need to save. To make this easier, ‘Google mortgage calculator with PITI’ to try to figure out what your mortgage expenses might look like.
Q: Would you recommend getting a co-signer (parent) for a loan to buy a home?
A: Yes, there’s nothing wrong with that! You can always refinance later and change it to just be in your name when you’re ready and able to do that.
Alright, I’ll end it there for now! Let me know if you guys find these helpful and I’ll be sure to do more. I also do Q&As on my Instagram every once in a while so be sure to follow along over there too! If you have any additional questions about buying your first home in LA, leave them below and I’ll do my best to get back!
xx Farrah
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