Buying a house in Los Angeles

If you’re thinking about buying a house in California, Los Angeles should definitely be on your consideration list. The City of Angels earned a spot on Bankrate’s most recent rankings of the best places to live in the Golden State — and, some proud Angelenos would add, the country.

Of course, as with any big city, life can be complicated. Read on for everything you need to know about becoming a homeowner in LA.

Why buy a house in Los Angeles

Beaches, mountains, cosmopolitan energy, cultural institutions and a thriving food scene, all dusted with Hollywood-style sophistication and glam – there are so many reasons to love living in Los Angeles. Plus, the city is making a name for itself in the high-tech industry. True, San Francisco and Silicon Valley remain synonymous with the startup space, but Los Angeles isn’t far behind – and living here is much more affordable compared with the Bay Area, with its elevated housing prices.

While there are plenty of headlines about people moving from Los Angeles, the city will always be an attractive destination. In fact, a recent report from RentCafe shows that Generation Z continued to flock to Los Angeles and neighboring Long Beach even throughout the pandemic. So, it’s unlikely that, should you do put down stakes here, your property’s value will decrease in the long-term.

Find a Los Angeles home for your budget

Los Angeles is not the priciest part of California, but it’s still plenty pricey. The median sales price of a single-family home in the Los Angeles metro area hit $750,000 in September (roughly double the national median), according to data from the California Association of Realtors. In fact, Los Angeles routinely ranks in the top 10 most expensive cities in the country, and even if you don’t live within the city limits, you’ll still have to deal with the high cost of living in the Golden State.

While LA is the opposite of “bargain,” there are pockets where you can find a cheaper place to call home. Redfin’s data shows that living in downtown Los Angeles comes with a lower price tag – $625,000 as of September – and there are other cost-effective suburbs to consider, such as Baldwin Park and Montebello. Of course, if money isn’t an issue for you, you can get closer to the water by exploring Marina del Rey, Brentwood, Venice, Santa Monica and other high-priced spots within a quick jog of the Pacific Ocean.

When to buy a house in Los Angeles

There is no one perfect time of year to buy a house in Los Angeles, and the last two years of historical data reflect the confusion and craziness of a hot, pandemic-fueled housing market. However, there is good news for buyers: 2023 seems like it will be an optimal time to buy a home here. The California Association of Realtors estimates that median home prices across the state will decrease by nearly 9 percent next year. Any sort of a drop in sales prices is a rarity in the state where median prices have increased by nearly $330,000 since 2016.

Additionally, it’s important to note that a statewide shift away from a seller’s market is already happening. The median time a home spent on the market in the LA metro area was 23 days in September – a sizable jump from 10 days just one year earlier. Plus, Redfin data shows that the percentage of sellers in the area who have dropped their prices has been increasing since February.

Things to know about buying a house in Los Angeles

How safe are the neighborhoods where you’re looking?

Los Angeles residents have to deal with plenty of the typical safety issues associated with any big city. While CrimeGrade gives the Los Angeles metro area a D- overall, it’s important to consider the particular neighborhood when assessing whether you will feel comfortable walking your dog late at night or if your house is likely to be burgled. The safety level varies considerably from residential section to section.

How long will your commute be?

In addition to spending time in your own neighborhood, it’s important to factor in how long it will take you to get elsewhere – especially your office. LA has notoriously bad traffic, although the city’s metro — yes, it does have one — is currently under expansion in preparation for hosting the Olympics in 2028. For now, though, you’re going to want to consider your daily commute to avoid spending too long in the car and too much on gas.

How much will you pay in closing costs?

In addition to covering a down payment, you’ll need to have enough cash to cover your portion of the closing costs on a home in Los Angeles. Data from ClosingCorp shows that the average closing costs in California added up to 1 percent of the purchase price in 2021. So, on a $750,000 home, that’s another $7,500 in expenses before you get the keys. It’s important to note that this figure does not include lender fees, which can add thousands of additional dollars in expenses. Make sure you compare lenders in California to find an option that offers a combination of competitive APR and low fees.

How much will you pay in property taxes?

At first glance, California’s average property tax can look like a bargain. At 0.76 percent, it’s much lower than many other states. However, since homes have such a high value here, your annual bill to the government can be a big line item in your budget — more than $6,000 based on median state home values. Since tax rates vary based on location, make sure you ask sellers for a breakdown of their past property tax bills to get a sense of how you’ll pay.

What else will you need to pay for as a homeowner?

The beauty of southern California is offset by some serious risks. Nearly one in every four properties faces a heightened hazard of flood damage, and wildfires continue to threaten the area year after year. As you’re thinking about buying a home here, it’s important to calculate how much you’ll need to pay in homeowners insurance coverage to protect it, and if additional insurance, like flood insurance, is mandated.

Tips for buying a house in Los Angeles

Save for a down payment

The average down payment on a new home in California was $103,000 in the spring of 2022. However, you may be able to become a homeowner in Los Angeles for a much smaller upfront investment. If you have excellent credit and a low debt-to-income ratio, some lenders will offer you conventional loan terms with a down payment of just 3 percent. However, it’s important to understand that a bigger down payment will make a huge difference in your monthly mortgage payment.

If you’re a low-income buyer, saving up the funds might seem impossible. Depending on your annual earnings, you may qualify for the Los Angeles Housing Department’s Low Income Purchase Assistance Program. The program is technically a deferred second mortgage up to $140,000, providing the difference between the overall home price and closing costs (up to 5 percent of the sales price) and the amount of the buyer’s first mortgage (a big help if you experience an appraisal gap). There are also state-sponsored programs for first-time homebuyers in California that can ease the burden of saving for a down payment.

Find a local Los Angeles real estate agent

Because LA is such a complex market, it’s important to find a real estate agent who can help you make sense of the real estate scene. A local agent or Realtor will have a firm grasp of how quickly homes are going to contract, which areas are seeing more or less activity and when sellers might be close to dropping their prices.

Get pre-approved for a mortgage

Getting pre-approved is the most essential step of buying a home in LA. Any seller will want to see proof that a lender has offered a preliminary thumbs-up  on your mortgage application; some may even want you to have conditional approval.

It’s important to recognize that you might need to get pre-approved for a jumbo loan due to the high prices in the area. In LA, conforming loan limits are $970,800 in 2022; any amount higher than that threshold will require excellent credit and a sizable down payment.

Understand the playing field

As you’re getting ready to make an offer on a home, it’s important to understand that there is a decent chance that another buyer might not need to submit any kind of pre-approval documentation. Instead, they will be submitting an all-cash offer. Redfin data shows that 16 percent of purchases in the LA metro area were all-cash deals in the first quarter of 2021. While some of those were individuals with big bank accounts, southern California is also home to loads of activity from iBuyers like Offerpad and Opendoor, not to mention local “we buy homes for cash” companies.

If you can’t afford to make a cash offer, be sure to think about other ways to be a more attractive buyer such as waiving contingencies or crafting an emotional letter.

Bottom line on buying a house in Los Angeles

Buying a house in Los Angeles isn’t easy. In fact, only 46 percent of people who live here own their homes — one of the lowest rates in the country. So, it’s important to carefully consider whether you should rent or buy.

If you have long-term plans to be here and you can afford the hefty costs of home ownership, it’s time to find a real estate agent who can help you turn the laid-back vacation vibes of California into an everyday feeling.