The real estate market in Los Angeles has significantly changed since the housing bubble burst in 2007. With historically low interest rates and the expectation of good housing deals, everyone seems eager to purchase a piece of real estate. However, it has rapidly become a competitive industry, with first-time homebuyers competing with a large number of cash investors.
Because of this, prospective buyers need to carefully think about their decision to purchase their first piece of property. Besides being emotionally and mentally prepared for the search, here are 5 must-haves of first-time homebuyers.
A realistic budget
Determine how much you can spend on your mortgage by creating a budget. Account for everything including credit card payments, school loans, and daily living expenses. Also, aim for a low debt-to-income ratio. This means that the debt you owe is low compared to your monthly income. Ideally, total debt payments should not exceed 36 percent, with mortgage payments not exceeding 28 percent.
A down payment of 20%
20 percent seems like an overwhelming amount to save up to buy a house, and lenders rarely require this much to put down. However, a down payment less than this would require buyers to purchase mortgage insurance, which costs around $200 to $300 monthly. This could easily add up and would cost buyers more money in the long run.
A pre-approval letter from a mortgage lender
A pre-approval is an important part of house hunting because it lets you and your realtor know that you are capable of buying. This will also help define your search and save you plenty of time, effort, and heartaches later on.
In addition, a pre-approval will give you more leverage when competing for a property. This is especially important in today’s current market because offers with pre-approvals rank higher with sellers. It is more likely that your offer will get accepted if you are pre-approved because it is less risky to the sellers. Take note that this is different from a pre-qualification letter, which is simply an informal estimate of how much you can afford to spend.
A local agent that you like
House hunting is frustrating and time-consuming, which means that you have to have someone you trust to help you find that dream house. This is especially important for first-time homebuyers who are clueless about the process of buying a home. Interview an agent about their experiences, and see if your personalities match because it is likely that you will be working with them over the course of several months.
The current real estate market is ruthless. You need to come prepared with your best offer, and try not to get heartbroken if your offer is rejected. Be patient because it is likely that you will experience several rejections before your offer gets accepted. Once it happens though, all the effort you have put in will be worth it.