Whether you’re still enjoying the single life or you’re looking to start a family, SoCal is a great place to live. Nowhere else will you find the same diversity of ethnicity, culture and scenery, with great economic opportunities to boot. The greater Los Angeles and Orange County areas have a little something for everyone.
All those advantages however, do not leave prospective homeowners without a few challenges. Several surveys rank California as the toughest state for first-time homebuyers. Real estate listings site Zillow rate L.A specifically amongst the most difficult cities for purchasing real estate. In fact, home prices in the city have never been higher and rents seem to be increasing in lockstep. Despite this, the demand for housing continues to grow. As long as that trend continues, it looks like we will be dealing with a seller’s market for the foreseeable future.
So what is there to do if you are one of the many individuals or families looking to own for the first time? With rent taking up half or more of your monthly income, it’s difficult to save up enough for a large down payment. At the same time, if you have mediocre credit, securing a loan on feasible terms seems an even bigger challenge, but don’t despair! There are steps you can begin taking today to boost your chances of getting a home that works right for you.
Do the Math
How to stop renting? Before you get started, it’s important that you are realistic about the costs of homeownership. If you’re living in a small apartment, expect your utilities to double or triple in a house with a front and backyard. A good rule of thumb is to expect about 30% of your income to go towards housing expenses.
Currently the median price for homes in Southern California is hovering around $480,000. However you’ll probably want to budget for a $100,000 over that figure if you’re looking for a more fashionable neighborhood. So, saving up for a 20% down payment in 5 years will mean saving around $50-$60 per day. Not impossible and much easier if you are a member of a dual income household; but certainly something you want to start budgeting for TODAY.
But You Won’t Need 20%
While 20% used to be the “magic number” when it came to mortgages, 10% has been an industry standard for finance providers in more recent years. Even then, if you have sufficient savings, you can qualify for an FHA (Federal Housing Authority) loan, which can allow you to pay down as little as 3.5% initially. Many locals also run first-time home buyer assistance programs. These programs provide grants or loans to prospective homeowners, usually to be repaid upon the property’s eventual sale. Some Veterans Assistance loan programs even accept 0% down, so be sure to look into all the options available based on your occupation and neighborhood.
The picture is definitely not as bleak as you might think at first. The key to unlocking all those extra funds is definitely prudent finances and saving. Lenders like to see that you’ll have some savings left over after the purchase. Plus you should definitely be able to maintain your quality of life without getting further into debt!
What if I have Bad Credit?
It’s true that bad credit can make it much more difficult to qualify for a mortgage loan, but there are still options available for those looking to make a purchase.
First of all, get in touch with one of the three credit reporting agencies; Experian, Equifax or Transunion. You are entitled to one free credit report from these entities. A credit report will help you to locate any discrepancies and to find out where you need to improve. You might want to pay up and find out what your FICO score is as well, in order to get a full picture. With a FICO of 500-579 you can usually qualify for a 10% minimum down payment loan from the FHA. Anything above 580 could get you below 3.5%.
Talk to a loan consultant or broker to get ideas on how to improve your score and do so as early as possible in order for it to be reflected on your credit report. At your current score you may still qualify for a subprime loan, or qualify for certain government loan programs with looser restrictions, so make sure you do your due diligence.
Try Costa Mesa
For many homeowners, Costa Mesa offers an unparalleled example of everything that makes Orange County great. Within the neighborhood you will find great locations to shop, dine, work and have fun. Even the beaches are right around the corner. Even so, it can be intimidating trying for a home in a more desirable neighborhood. Thankfully, there are some great first-time buyer programs in the area that make it possible to afford a down payment.
Check out the Home Possible Neighborhood Solution Program created by Freddie Mac. It offers low down payment costs and flexible credit terms for anyone with a FICO over 620. The Good Neighbor Next Door program run by the HUD offers assistance to firefighters, EMTs, teachers and law enforcement officials, providing up to a 50% discount in revitalized areas. Finally you can look into the USDA home loan program, which advertises no down payment necessary!
Once you are pre-approved for a loan, contact Torelli Realty to find your dream home!