That’s right, I said it, buying with less than $20,000 is doable in Los Angeles. And it gets better! Some great mortgage programs allow all or part to be a gift. I’ve had multiple buyers do it, and so can you. Before I get started, as a reminder, I’m not a financial adviser or Certified Public Accountant, so you need to consult with the appropriate parties to determine what is best for your life. With the legal stuff now out of the way, here’s the plan:
Step 1: I’ve written time and time again that you don’t have to put 20% down. If you run the numbers, often the difference in monthly payments are nominal and can be made up through house hacking (I wrote about house hacking here), even with the private mortgage insurance. For conventional loans, you can put as little as 3% down.
Step 2: You might think that finding a home under $400,000 is impossible, but in fact, it is easier than you think. Consider a condo to start in. Later, you can rent it out or be eligible to sell it for a tax-free profit. You can find a nice 2-bedroom, 2-bathroom condo in prime areas of the San Fernando Valley of Los Angeles for less than $375,000 (as of the time of this article). That’s only $11,250 right there as the down payment. Add closing costs of somewhere in the range of $8,200, your total is $19,450! If you cannot swing that, but have good income, lenders can raise the interest rate slightly and cover your closing costs and you could be back to needing only $11,250!
Step 3: Consider the monthly payment and compare it to what you are paying now. Assuming Homeowner Association dues are $400/month and interest rates are at 4.0% fixed rate, your payments would be in the range of $2,900/month. Although that may be higher than what you are paying in rent, keep in mind as rents continue to go up (and they will with a 99% certainty), however, your mortgage won’t. This is especially true if you decide later to refinance the loan for lower payments. I did that on my condo, saving me thousands per year.
Step 4: Talk to your CPA about the tax benefits and take those savings into account. Although no guarantee of results, I didn’t see savings into the thousands per year until I owned property. So, if I am going to be paying for housing, whether it be rent or with a mortgage, I might as well get something out of it.
Step 5: Consider your options with the second bedroom. Maybe you can rent it out to a friend for $1,000/month. Conversely, if you can justify the second bedroom as an office, talk to your CPA about those benefits as a write off. It’s your place now, so you’re in control!
If this is of interest, you should sit down with your Realtor® and loan officer to hash out the details to see if it is the best option for you. The main idea behind this isn’t to get you to pay more than what you are comfortable with or to jump into buying mode right away. The main point here is there are options to buy so that you don’t chase the market, which so many other buyers have done.
No responses yet