California residents who are considering buying a home may need to save for some time to gather enough cash. Nationally, an average person who currently rents will need around 6.5 years to save enough to make a 20 percent down payment on a home, according to an analysis by rental listing company HotPads. In expensive areas like Los Angeles, on the other hand, it can take as many as 20 or 30 years. In less expensive parts of the country, it might take only four years. People in some areas are able to save faster because they spend less money on rent.
Many new home buyers turn to options that don’t require 20 percent down. First-time buyers may be able to borrow from the Federal Housing Administration, for example. FHA loans have minimum down payments as low as 3.5 percent. The homeowner must carry mortgage insurance, increasing the monthly payments. Freddie Mac and Fannie Mae offer mortgage programs with as little as 3 percent down; these programs also require the homeowner to carry mortgage insurance. For veterans of the armed services and their families, the FHA has some loans available with no required down payment.
Generally speaking, mortgage lenders limit borrowing by requiring the borrower’s total debt does not exceed 43 percent of his or her income. This ratio comes from a provision of lending rules established following the financial crisis. Total debt includes things like credit card debt, student loan payments and car loans.
Buying real estate in California often means paying more, and dealing with a bit of red tape as well. An attorney with experience in real estate law might be able to help by reviewing mortgages, escrow agreements and other closing documents.