For your first home purchase, you would need to understand how much you can afford and how to prepare your finances.
1. First things first, what are the ways to pay for a home?
a) In cash
b) A mixture of cash and a loan (most common option which we will be focusing on today)
c) Just a loan
If you are paying in cash, that is awesome and you can skip this week's series! If not, then you will need to save up for a downpayment amount and have enough income to support a mortgage payment monthly, which usually takes time. How much you can afford can usually be calculated as approximately equal to: your amount of downpayment + your loan. A lot of people also often ask me:
2. How much of a downpayment do I need?
Most people think they need the traditional 20% down payment of the home purchase price. Taking the median house price in Los Angeles of $585,000, that means one would need a $116,000 sum up front.
Fortunately for us, most bankers don’t require the 20% down payment from buyers anymore. Contrary to popular belief, many home shoppers now pay 10% or even less up front when purchasing a home. Some pay even as low as 3.5%!
There are a variety of programs in place for buyers without much cash on hand. These include: Federal Housing Authority (FHA) loans for first-time buyers, VA loans for veterans and active service members (no down payment needed- option 3), a loan only), and Home Possible Mortgages for buyers with low or mid-level incomes.
3. How do I get pre-qualified?
By speaking with a bank or loan officer! Your lender will usually pull a full credit report, look at bank statements, pay stubs and tax returns. Based on these criteria, they will give you a pre-approval letter that will be needed when making an offer on a home you love! By working with a lender in the early stages of buying, it will put you in a better and more competitive standing in the real estate market. It will also help you understand what kind of budget you have to work with, and let you have a better sense of any special loan programs you might qualify for. This way, you go into the real estate market knowing what price you are comfortable purchasing with and what your monthly payments will be, for how long of a period, and with what type of interest rate.
Please message me if you'd like to find out more about the pre-qualifying process and what kind of down payment assistant programs may be available to you as a first time home buyer!
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