Advice From a Buyer’s Agent: The Most Affordable Option in LA

With rents skyrocketing in Los Angeles, many first-time homebuyers are turning to the most viable entry-level home purchase – Condos.

That brings the next question – how much do you need for a down payment? A conventional loan for a $700,000 purchase requires 20% down payment which means you would need $140,000 plus closing costs and saving reserves. Not every potential homebuyer has 20% saved up (yet!) so this can add to the frustration of continuing to pay high rents without building up your net worth.

My tip is to seek a loan option with lower down payment requirements. For example, with the increased FHA loan limits of $726,525, obtaining financing with down payments as little as 5% to 10% is a reality. Several clients of mine have utilized FHA loans — which can be used for single family houses and non-first time homebuyers. Yes, with down payments under 10%, you do typically pay mortgage insurance premiums — otherwise known as PMI, for 5 years. Ask a mortgage broker or FHA lender about your specific scenario but you can also most likely enjoy tax savings by utilizing interest deductions (check with your tax advisor).

With 5% down for the above mentioned $700,000 purchase, you would then need $35,000, for the down payment — substantially less than $140,000! If you think about how many years it would take for you to save $35,000 vs. $140,000, it could be a long time, even several years.

I heartily recommend going the low down payment route and buying now versus waiting several years. And we haven’t even discussed the equity you would gain by owning versus the rent money you would be paying! Los Angeles will always be a desirable place to live making home-buying here a safe investment.

Contribution by Heather Stevens

Heather Stevens began her real estate career helping clean up her architect/developer’s father’s building sites. She designed and built her first home when she was 16 years old in the Carmel area, which sparked her interest in real estate. She’s an experienced realtor who has worked with many different types of sales and buyers, and loves a good challenge.

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