Don’t Make These 3 Home Loan Mistakes When Buying a Home in Los Angeles

home loan mistakes when buying a home in Los AngelesIn securing financing for a home, there are a lot of pitfalls to be skirted. You’ve probably heard all the horror stories about people who got locked into bad home loans and had to live with it for a lot of years. But it doesn’t have to be that way. Just don’t make these 3 home loan mistakes when buying a home in Los Angeles.

Not Taking Into Account Existing Debt

When applying for a home loan, most people have no idea how much credit they have available. But the prospective lender will certainly look into that.

Lenders will not only examine your payment history but your debt-to-income ratio as well. That means they will delve deeply into how your current outstanding debt stacks up against your income. So applying for a home with too much existing debt is a pretty sure way to get your application rejected. For sound business reasons, lenders have a limit as to how much credit they can and will extend to you.

Most first-time home buyers fail to take into account the amount of their existing debt. So the takeaway here is that you should try to pay down as much consumer and credit card debt as you can before applying for a home loan.

Going for Low/Zero Down Payment

We all usually jump at a chance to buy a big-ticket item with little to nothing down. But when it comes to buying a home, as much down as you can afford is the best course for several reasons.

A substantial down payment shows the lender that you don’t mind putting some early equity into the home, that you have “some skin in the game.” As a result, it’s much easier to get approved for a home loan.

A larger down payment of 20% or more considerably reduces the lender’s financial vulnerability, and so the lender is more inclined to offer you better interest rates. And a lower rate over the life of, say, a 30-year loan means a lot of money saved in the long run.

A larger down payment also reduces the mortgage insurance. You won’t have to wait several years until some equity is built up.
And, obviously, it makes for lower monthly payments.

Neglecting the Total Cost of Home Ownership

This home loan mistake when buying a home in Los Angeles isn’t so much about securing the loan as it is affording the payments down the road. The cost of owning a home doesn’t end with the closing costs and the monthly mortgage payments. There are also property taxes, insurance, and homeowner’s association fees, as well as the costs of routine maintenance, repairs, and improvements. So you need to make sure you can afford the total cost of homeownership.

Financial institutions assert that total housing costs should never exceed 30% of your gross income. And they also recommend setting aside 1% to 2% of your home’s value to cover maintenance, repair, and replacement costs.

So home buyers, especially first-time buyers, should seek pre-approval before setting out on a home search. That way, they’ll have a much better idea of how much home (including total ownership costs) they can afford. And in this case, it’s better to aim a little lower rather than higher.

Securing a home loan isn’t something to be taken lightly or done without sufficient due diligence. After all, you’re going to spend a big chunk of the rest of your life paying off that loan. So you don’t want to make any home loan mistakes when buying a home in Los Angeles.


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