Let's get this out of the way: Yes, you can buy a house in Los Angeles and pay less per month than a bland two-bedroom in Culver City. But this isn't a late-night TV infomercial. There are catches. It can be excruciatingly hard work. But it is possible. I'm doing it. I'm buying a real house in Los Angeles for $164,000.
A small introduction: I've been in Los Angeles for two years. In that time, I've spent a total of $24,000 on rent on a tiny apartment, my half of a two-bed, two-bath in West Hollywood. I loved my apartment; it was home. But I was tired of scraping by. No matter how modest my lifestyle, $1000 escaped from my bank account on the fifth of every month, never to return.
And it wasn't like I thought buying a house was a possibility. The cute bungalows one on my street started at $870,000. I began to accept the possibility I would be living in an apartment well into old age; the only home in my future would be a retirement home.
Then this global financial meltdown happened and everything changed. I admit, it's a lot easier to be flippant when I have nothing at stake, no home equity worth half what I paid. But even those hit hardest by this bursting bubble can admit that the market was overvalued. When you're buying a house, you have to keep these people in mind. Your gain comes from their loss.
My goal was to find a house where the monthly payments would leave my roommate and me paying no more than half of what I was paying before. $500 a month to own your own home is possible. Here's what you need:
First, a willingness to leave the Westside. If you're hoping to pay about $500 a month to own your own home, there are some places you just won't be able to live. Forget West Hollywood, Santa Monica, Venice Beach, Echo Park, and Silver Lake. Forget Culver City, and Koreatown too.
To find the real deals, you're going to have to go to the South or the East. Explore West Adams, Crenshaw, Westmont, Florence-Graham. Drive out to East L.A. on Cesar Chavez and wonder why you've never explored Boyle Heights, City Terrace or Monterey Park.
There are good blocks and bad blocks of each of these. Some that wind up on the news and some that rival the most pristine the Westside has to offer. With all of the foreclosures in these areas, young, motivated people like you are ready to move in. Remember, Echo Park and Silver Lake were once considered "rough."
My advice is to look for a house in East L.A. The Metro Transit Authority gave the people East of downtown a golden present in November: a brand new subway line. The Metro Gold Line connects East L.A. directly to Union Station and runs throughout the city. Taking the subway to work every day? Count me in.
Find a relative with better credit than you. Unless you've paid off your car and student loans and kept a credit card paid off throughout college, your credit is probably undeveloped. You might have to have a co-signer to apply for the home loan with you. They won't have to front the money for the down payment or help pay for the loan, just vouch that you can make monthly payments. Maybe reserve this one for mom and dad. They trust you.
Find another relative with some cash to spare. You've already asked enough of this first family member. All you need for the down payment on a loan from the Federal Housing Administration is 3.5 percent down. This works out to be about $5000. I know this seems like a lot, but keep in mind that most people save for years for a down payment. All you need is just one favor from a wealthy uncle.
Even better, you can pay him back quickly. Because this is probably your first house, you'll qualify for the first-time homebuyer credit. This is an $8000 credit added to your 2010 taxes. Whatever you don't owe the U.S. government in April, you get to keep. Pay your uncle back over the summer and put the rest towards fixing up the house. Or, if you're feeling generous, give him some interest on his loan.
All you need to do is submit a copy of the HUD-1 statement from your closing. It needs to be in your name (not your co-signer's). You need to have a binding contract in by May 1, 2010 and have closed on the house by the first of July. Plenty of time.
Choose a bank, get pre-qualified. This takes about 15 minutes, and can be done over the phone. The pre-qualification is a bit of an estimation given your yearly income, credit score, rough savings and down payment amount. This isn't an actual pre-approval for a loan—to get one of those, you have to go through an underwriting process which, to the credit of banks everywhere, is a tougher process than it was a year ago (you have to submit two years of tax forms and prove your income).
But a pre-qualification is still important. With any luck, you'll get the paperwork started for a low-interest Federal Housing loan that'll stay at a fixed rate for the life of the loan (usually 30 years). Once you have a pre-qual, you'll have an idea of how much you can spend. The fun part is coming up …
Start searching for houses! A realtor can help with this, but if you just want to check out the repossessed homes on the market in L.A., try this tip: You can see all of the properties that Bank of America now owns. You can use this tool to research listings, get a sense of prices around a specific area, and (perhaps the best tool at your disposal) check Google Street View. Go to www.bankofamerica.com and click on "Mortgage." In the top, right-hand corner, there should be a search bar. Type in "REO" and hit "Search." After you input your state, search by “County” and set your results per page to around 100. This brings up a list of all of the repossessed homes owned by Bank of America. Find the list of homes in L.A. County and you've got a great head start in your search.
Also, you'll want to consider getting a buyer's realtor. These guys are different than the ones who rep houses (usually called "listing agents"). They'll work with you to find the house you want in the area you want, usually with more sophisticated search tools than you'll be able to find on public house listing websites. Watch out for realtors who seem too pushy or too eager to get you into the first house you find. The good thing is that you'll see many more houses this way.
Here's what to look for: First, interior photos of the house. If there aren't any, there's a chance that the house isn't vacant—it's been foreclosed on by the bank and the original occupants are still inside. This makes it impossible to get a loan on the house; the occupants won't allow an appraiser inside, so the bank won't lend.
Second, check the neighborhood on Google Street View. Pay close attention to the homes nearby. Look for graffiti. Check if there are any schools or parks nearby.
Third, if you're really interested, drive by the house yourself. After you get a feel for the neighborhood, take a trip to the local police station. As a matter of public record, the officers have to disclose if there were any recent crimes in the area. Don't be scared off by petty theft (I had $5000 of camera equipment stolen out of a locked garage in West Hollywood, of all places). But there's no need to be too cavalier, either.
Here's what you need: Once you've found a house, it's time to call everyone together and put in a bid. To bid on a house in California, you need a few more things. First, with every bid, you need to put a small amount of money down to prove that you're serious about the full bid. This is called an Earnest Money Deposit or EMD. Usually, it's between $500 and $1000 in a check made out to "Escrow."
Next, you need a copy of a bank statement showing you (or your uncle or whomever) can cover the down payment and the closing costs. These can include a home inspection, property taxes, and the fees for your realtor. Then, you'll need that pre-approval from your mortgage broker. Expect this one to be a bit more thorough than your pre-qual.
You'll need some luck, too. But keep in mind, no matter how much pressure you feel from your realtor, this is still a buyer's market—especially in the sub-$200k listings. If you miss out on one home, there will be another. Just keep trying.
Here's the Catch. As you'd imagine, all of this stuff is much easier said than done. The more people you involve, the more people you'll have to corral (and argue with) when it comes time to close on your new home. A small list of the people that you'll need to add to the favorites on your cell phone: Your mortgage broker, your co-signer parents, your wealthy uncle, your new roommate, your realtor, your accountant…
The final word. This is a lot of work. But you can do it. And there's some more good news—even besides the $8000 tax credit and all the money you'll save on rent. Banks have a policy of not foreclosing on families over the holidays. In 2010, a wave of newly-repossessed homes are going to come on the market. So start hunting!
