You secured your lease, life is going along swimmingly but you think it’s time to lay down some roots. Here’s a guide to buying a house in LA as an expat.
LA rent is not cheap. Essentially, unlike in Australia, LA rent is the same as the owner’s mortgage payments plus property tax. In other words, you’re not getting a bargain and all you’re doing is helping them pay off their mortgage.
We loved the house we first signed up to but after a while it got too small for us. So I started looking around, even extending our search outside the 90210 postcode, and was shocked to find there was nothing around. Even increasing our budget by $2,000 didn’t get us what we were looking for in upgrading our humble abode.
Buying a house in LA
I started scouring websites looking for houses. My dream was a mid-century modern in the hills already done (or minor jobs to be done) with a pool and view.
The next thing I needed to do was see who would lend me the money.
I worked on a budget of our current rent figuring we had a decent buy price to get a house with everything we wanted. Cheaper than rent plus it’s ours!
Armed with this I went to our bank, Citibank, to see what they could offer me.
With a 20% deposit and a very good credit rating we could get the money we need. Excellent.
Credit rating in this country is a whole ‘nother beast of a topic. But, in short, ours wasn’t very good or excellent; it was just good.
In a nutshell, from what I could gather it’s because of the way we manage our credit cards. You see our limit is a limit we use each month that I’ve budgeted to pay off each month. I don’t want a higher limit because we’ll use it, we’ll spend it and eat into our savings bucket. I’m happy and comfortable with what we have. But that means we actually use the credit limit we’re given. That’s what it’s there for right? Wrong.
The powers that be in Credit rating land think we’re a red flag because we use the credit made available to us via our credit card. They don’t look at the fact that I pay it off each month (every fortnight actually). I made a $10k purchase on my credit card (think of all the points!) and then paid it off once I was done so I could carry on charging my stuff to it. But you could see in that month our credit rating drop down. I mean seriously, don’t they look at the next transaction, the one where we paid it off (and I’m talking that day people that day). Stupid.
You really think I’d learn my lesson. Please learn for me.
No loan from CitiBank #fail
So, even though we showed that we paid our rent on time every month for two plus years, we had the deposit and money to spare in the bank, based solely on our credit rating CitiBank was a no go.
I threatened to move my accounts but haven’t bothered because it’s too convenient having a branch down the road. But they don’t know that!
I speak of them with disdain instead of admiration now though.
Finding my dream LA house
After months of searching for my perfect Mid-century modern home it became clear that most of them are fixi-ups. Now, to be clear, this is our “rent replacement house” not our “forever house”. Being a rent replacement house I didn’t want a fix-up job, one where we’d have to take six months renovating it. Defeats the purpose.
Securing a Realtor
You can scour the websites and research houses yourself but if you engage a Realtor early on in the piece they can start looking for places for you.
You see they have broker open houses and access to a clumsy but very good tool known as the MLS. Just by entering the parameters you want in a search engine you can get houses sent to you weekly. And, if they see a house while they’re looking, they can arrange for you to see it. It can take a lot of time out of the hunting process.
Buying a house as an Expat
It can be done, buying a house in LA as an Expat. But, you just need to be aware of a couple of things.
- The visa. Each Bank deals with different visas in different ways. Then depending on that there may or may not be different conditions. As an E3 visa holder we were able to borrow money like a “normal” American.
- Deposit. Some of the lenders I spoke to insisted on 30% because of our expat/visa status. We did find a bank willing to give us a loan based on 20% though so do shop around.
One of the people you need to secure, as well as a Realtor, is a Mortgage Broker. There are mortgage brokers who represent several banks (as they are in Australia) but beware many Mortgage Brokers I spoke to represent only the one bank. From what I gather these guys are sole operators but work with a bank. You don’t have to pay them they must get a commission from the Bank. So it’s a bit different and a bit strange because they’re not actually shopping the market looking for the best deal for you, they’re just offering you a Mortgage.
You can also go into your local branch and ask to apply for a loan as we do in Australia. And, there are online guys which I would say be wary of. I started filling forms in for Quicken Loans but then when I got to the last screen cancelled out yet I got calls from all these lenders/brokers and still get the occasional email from them (got one today in fact). Not happy Jan.
Putting in an offer
I know you’re dying to know if I found my dream mid-century modern home with very little to do, a pool and a view. In short: no. Out of left field we found a house in “the flats” which was brand new, had a beautiful floorplan and a pool.
We fell in love. We did a quick change in search looked at a number of new constructions in the area but decided this was the house for us. It was New Year’s eve when we put an offer in and our Realtor was in Europe on holiday.
“Oh no, you absolutely must put the offer in now because there’s less chance of other active bidders at this time,” she said.
So we did.
In the US offers must be writing and you need to think carefully about contingencies at this time. That’s where your Realtor becomes like gold. If they’re good at what they do, with experience they come up with all the ideas and you just say yay or nay.
Not to bore you but the offer process is very boring. If you’re looking for a bargain (which we were) then there will be counter offers and counter offers before you either bow out or settle on a price–don’t forget contingencies. For example, in one of the seller’s contingencies was reducing the settlement time. We were all for it too (we wanted to move into our house and stop paying rent) but we weren’t sure how long the mortgage would take to get through. But that became a “thing”.
And then, some sellers will use your offer to go back to interested parties to say look, we’ve got an offer do you want to put one in too. That’s where a quasi auction happens. (They don’t have auctions here; too complex a system I suppose to be able to deal with it but you’d think auctions otherwise would be quite successful).
Even if a house is under offer or under escrow anything can happen. It’s not until all contingencies are dropped that they’re comfortable it’s all going to be OK. So for them it’s a trust issue. Our agent had to put the seller at ease and let them know that we want to buy the house just as badly as he wants to sell the house and we’re doing everything in our power to make sure it happens.
Much like when you’re leasing a house, as I mention in that Blog, you need an agent who you’ve developed a good working relationship with that can go into bat for you and ensure the seller the purchase is secure. And, as soon as you’re able to drop contingencies (like inspections and securing the money) then you’re up and running.
But, expats make Americans nervous so hook up with a Realtor that understands you and the situation. We were happy with our agent because she deals with Expats all the time and understands how the system works. A big part of it is knowing what to say.
So here there is an Escrow agency that’s used to sort through the paperwork. They co-ordinate with the Bank, their agent and your agent to settle. Not conveyancers or lawyers like in Australia.
On the day of settlement, you don’t actually sign the mortgage at your bank, you sign it all at the Escrow’s office.
Then once the documents are all signed at Escrow the house is yours! The agent will arrange with you to meet at your house with the keys and you’re in your very own new home.
It’s a complex system here. As I always say everything in America is an industry designed for people to be able to make a living from. You don’t pay your agent to buy your house (the commission is split 50/50 and paid for by the seller) so use one. It might well be the only free thing you get in the US!
You don’t get a say in who you use for Escrow but they’re arbitrary anyway so it doesn’t really matter. Actually seems strange but it’s true.
The way I figure it even if the property doesn’t increase in value my “rent equivalent” is paying off principal AND interest. And that money is going to me, not someone else. Interest payments are tax deductible here although there is a cap on the mortgage amount so check first. Check with your tax accountant and please don’t take my advice as financial in any way, shape or form–you’d not only be a Wally too because I’m not qualified but seriously you need to work out if it works for you.
The property tax is a bitch but the year after we bought our tax bill was much less so we figured it balanced itself out.
You see, for now at least, interest from your principal home is tax deductible. Barry bonus but those nutbags Trump calls his party are trying to limit the amount of tax that can be claimed so watch this space. Sounds like a socialist thing to do in my humble opinion (and you know since moving here I’ve realised I am a socialist so it’s not a dig, just fact).
Apart from all of that we’re so happy to be in our own house. If we hadn’t have bought and ended up paying more for rent it would down-right depressing.
So if you’re sick of paying rent just know it can be done. What have you got to lose?!
xx It Started in LA xx