Ep.18 - Home-Buying in LA: $100k Edition

According to DQYDJ, $100k/yr puts you in the top 12% of income earners in the entire country. That's not too shabby. With this kind of income, you are finally breaking into the world of single-family homes in LA. However, these are VERY MUCH starter homes, in the strictest sense.

Here is everything you need to know.

HOUSE OR CONDO?

You can afford some nice condos and even small single-family houses.

HOW MUCH HOME CAN YOU AFFORD?

Less than $475k. If you have a lot of savings, then add the amount of savings on top of that. For example, if you have an extra $50k in savings to spend on a home, you can afford up to $525k.

YOUR BEST MORTGAGE PROGRAM

The best program is the 5% fixed rate conventional loan.

If you don't have 5% cash saved up, your second best option is an FHA loan. The mortgage insurance on an FHA, which is called MIP, cannot be removed unless you refinance. If you want to learn more about these two programs, take a look at episode 3, where they are explained in detail.

CREDIT SCORE

680 and above, but 740 gives you the best rate, which is 4.125% right now.

MAX MONTHLY DEBT ALLOWED?

Max Mortgage (36% of your income): $3,000.

Total Debt (45% of your income): $3,750. That is the total amount of all your debt, including your mortgage, credit cards, student loans and car loans. So if your mortgage plus existing debt adds up to more than $3,750 a month, then you won't be able to buy a house.

HOW MUCH CASH DO YOU NEED?

Conventional Loan: 5% down + 3% closing costs. On a house of $500k, you should prepare $40k.

FHA Loan: 3.5% down + 3% closing costs. On a house of $500k, you should prepare $33k.

HOW MUCH EXISTING DEBT CAN YOU HAVE?

You should have close to zero debt. Realistically, you can have up to $750 outstanding monthly debt (including credit card, student loan, car loan).