Ep.19 - Home-Buying in LA: $120k Edition

$120k a year puts you in the top 10% of earners as an individual and top 20% as a household. If we use income as an imperfect proxy, you are solidly in the upper-middle class. With $120k, you can finally ditch condos and find a place with a yard.

But there's a caveat. Location-wise, it may be farther than you desire.

Here is everything you need to know.

HOUSE OR CONDO?

You now have some options with single-family houses.

HOW MUCH HOME CAN YOU AFFORD?

Less than $600k.

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 I dive into detail.

CREDIT SCORE

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

MAX MONTHLY DEBT ALLOWED?

Housing Related Debt (36% of your income): $3,600.

Total Debt (45% of your income): $4,500. 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 $4,500 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 $600k, you should prepare $48k.

FHA Loan: 3.5% down + 3% closing costs. On a house of $600k, you should prepare $39k.

HOW MUCH EXISTING DEBT CAN YOU HAVE?

You should have close to zero debt. But, if you're a typical millennial in LA, this is probably not the case. Realistically, you can have up to $900 outstanding monthly debt (including credit card, student loan, car loan, etc.)