The California real estate market presents buyers with a tough decision to make. According to the 2018 California Association of Realtors (CAR) Profile of Home Buyers and Sellers, the average house in Los Angeles, Orange County, San Diego County, and Riverside County costs $579,500—$143,000 more than the national average and $233,000 more than the national median home price ($350,200). But what if you’re part of the hardworking middle class and have a steady income? This makes buying a house in California highly unaffordable to many people. But how can middle-class homeowners afford million-dollar homes? We’ll tell you exactly how!
- What You Need To Know
- Follow middle class rules
- Save 20% of your income
- Take care of your credit
- Reduce your monthly expenditures
- Get some help from your parents
- Consider moving out of the city center
- Check out marketplaces with lower home prices
- Tax Considerations and Insurance Considerations
1. What You Need To Know
The cost of living in California is notoriously high, and housing prices are no exception. To afford a million-dollar home in the Golden State, you’ll need to have a high income and be able to put down a sizable down payment. Additionally, you’ll need to be comfortable with a high monthly mortgage payment. However, owning a million-dollar home in California can be an advantageous experience if you can make all these sacrifices.
So how do Californians make it work if their salary isn’t high enough to afford such expensive homes? It all comes down to money. They have good credit scores and financial stability and can make sacrifices early on in their careers to keep up with rising home prices. For example, many middle-class families will move out of state or relocate to cheaper suburbs outside major cities like San Francisco or Los Angeles. And for those who want to stay near family or don’t want to commute long distances every day, there are plenty of cheaper homes available in communities near the coastlines that aren’t too far from the city centers. All of this may seem drastic, but when you think about it. People have been finding ways to live within their means since the beginning. If you want to buy a million-dollar home in California, then know that sacrifices must be made!
2. Follow middle class rules
The middle class usually lives within their means, saves for large purchases, and makes do with what they have. They also tend to invest in things that appreciate over time, like real estate. So to afford a million-dollar home, a middle-class person in California would need to follow these basic rules:
- The middle-class individual would have to live within their means by limiting frivolous spending.
- The middle-class individual would save up for large purchases by putting money away monthly into an emergency fund or savings account.
- The middle-class individual might purchase items that appreciate over time, such as a house or stocks, so they will be worth more in the future when sold or bought.
Finally, they will have to invest their money into real estate or stocks to afford a million-dollar home. For example, a middle-class person living in California might have purchased several homes over time and sold them later at higher prices. Or, they may have invested their money in an individual stock that has significantly grown since its purchase. Either way, a middle-class person can become wealthy enough to afford million-dollar homes through hard work and investment.
3. Save 20% of your income
The first step is saving. You’ll need to put away at least 20% of your income if you want to afford a million-dollar home. This may seem like a lot, but it’s doable if you’re diligent about it:
- Create a budget and make sure you stick to it.
- Automate your savings so you don’t have to think about it.
- Make sure you invest your money so that it can grow over time.
If you invest wisely, those investments will pay off exponentially when the housing market increases again. Remember that the best investment is a down payment on a house! Some people would invest in real estate projects on platforms like Fundrise to make passive income.
Even if you already have some savings, you may want to set up an additional automatic savings plan just for your down payment. This will help ensure you have enough money when it’s time to purchase a home. So, if you’ve got your eye on that million-dollar home, start working towards it today! First, make sure you cut back on expenses and save more than ever. Then, when the housing market rebounds, you’ll be ready to buy. But this is a marathon, not a sprint. Your goal should be to spend less now, not try cramming too much into your monthly budget and risk running out of cash later. So go ahead and enjoy that coffee or takeout occasionally—you deserve it!
Be flexible with your plans, and you’ll be able to save more. After all, you never know when unexpected expenses will pop up, so it’s best to play it safe. The most important thing is that you save 20% of your monthly income! The sooner you start, the better off you’ll be in the long run. Once you’ve put aside enough for a down payment and can afford monthly mortgage payments, it’s time to find yourself a home.
Read more What Realtors Need to Know About Home Selling & Buying?
4. Take care of your credit
One of the most important things you can do when trying to afford a million-dollar home is to take care of your credit. This means paying your bills on time, keeping your credit card balances low, and only applying for new credit when needed. By doing this, you’ll be in good financial shape and more likely to be approved for a loan. In addition, make sure you have enough cash for a down payment: it’s recommended that buyers have at least 10% of their own money saved up as a down payment.
The average down payment today is 13%. But how much money you should save depends on the property type you’re looking.
For example, if you’re going for a single-family home, experts recommend buying between three and four times your annual income. So, if you have a household income of $120,000 per year and are trying to buy an $800,000 home, then you should have at least $240,000 as a down payment. To do that without significant sacrifices means saving an average of $7368 every month until you reach your goal.
If you have credit card debt, make sure it’s at a reasonable rate and try to pay it off as soon as possible. If your debt is too high, your lender might be skeptical about lending you money again.
5. Reduce your monthly expenditures
To afford a million-dollar homes for sale in California, you’ll need to reduce your monthly expenditures. You can do this by looking at your budget and seeing where you can cut back. For example, you may give up your cable TV subscription or eat out less often. Small changes can make a big difference in your monthly budget. For example, spending $50 each month on coffee drinks alone adds up to $600 per year. If you stop spending money on those drinks, you could put that money towards your mortgage instead!
You can also look at your more considerable expenses, such as car payments and housing costs. If you could reduce these by a small amount each month, it would go a long way towards allowing you to save up for your dream home! For example, if you spent $400 per month on groceries instead of $500 each, you could save $3200 each year. Instead of using that money towards groceries, put it into an investment account where it will earn interest and help boost your savings. As the years go by, your investments should grow. Over time, with enough dedication and perseverance, you may be able to use that money to buy the house of your dreams!
6. Get some help from your parents
For many middle-class people in California, the dream of owning a million-dollar home is a dream. But with your parents’ help, that dream could become a reality. Here are five ways to get your parents to help you afford a million-dollar home
1) If they have an inheritance or family business to leave you, use it as collateral for a down payment and loan.
2) Have them co-sign your mortgage so you can take out a larger loan at lower interest rates.
3) Get help from your friends and family.
4) Ask your parents if they can co-sign on your student loans. That way, you’ll be able to use them as collateral for a home loan.
5) If your parents own property, you could use it as collateral for financing a down payment or get them to sell it so you can buy something with cash.
While it might seem uncomfortable, asking your parents for help with housing may be your best bet. Then, with love and understanding, you’ll live in that million-dollar home before you know it.
7. Consider moving out of the city center
The first step to being able to afford a million-dollar home is considering a move out of the city center. In many cases, the price for homes skyrockets the closer you are to downtown. Suppose you’re willing to live in a suburb or even further away from the action. You may be surprised at how much your money can go.
For example, you are looking at homes between $800,000 and $1 million. The median listing price for a home in Palo Alto is around $3 million, but you can get nearly identical houses elsewhere for less than half that price. In some cases—like Cupertino—it’s even possible to find similar homes for less than their asking prices. On top of that, it’s not just suburban areas with more affordable options: Los Angeles County offers more listings in this range than any other county in the state.
For example, Los Angeles County has 69 listings in the $800,000 to $1 million range. However, it offers more options between $1 million and $2 million—169 total listings. That’s nearly double that of any other county in California.
8. Check out marketplaces with lower home prices
To afford a million-dollar home, you’ll need to find marketplaces with lower prices. Luckily, there are plenty of options in California. You can look in Riverside, Sacramento, and even San Bernardino. In addition, plenty of online resources can help you find the perfect home for sale Valley Center for your budget.
For example, you could use websites like Craigslist or Zillow. It’s always worth it to research before making an offer on the house, so do your homework before committing!
So, where do you start your search for affordable homes? First, think about what you can afford if you can purchase something for less than $500,000 or even $1 million, great! That will open up a lot of options. But if you need to stay under that mark, it could mean limiting your home search to areas like Riverside or Sacramento. Once you know what kind of home and neighborhood is right for you, it’s time to start searching online.
There are two primary online resources for home searches: websites like Craigslist and real estate search sites like Zillow. As a bonus, real estate search sites allow you to sign up for email alerts, so you know as soon as a new listing hits the market. If you’re working with a buyer’s agent, they can also keep an eye out for new listings that fit your requirements—which is especially helpful if you have your heart set on something unique or unusual.
9. Tax Considerations and Insurance Considerations
You’re not just paying for the property when buying a million-dollar home. You’re also paying for the associated costs, like taxes and insurance. In California, property taxes are based on the value of your home. So, if your home is worth $1 million, you can expect to pay about $10,000 in property taxes each year. As for insurance, it’s essential to have enough coverage to protect your investment. For example, a typical homeowner’s policy covers the cost of repairs from disasters such as earthquakes, fires, or storm damage. However, you may need additional insurance coverage for luxury items that could be lost during these events (such as expensive artwork). And then, there are other considerations: A larger down payment means more equity upfront, which will give you a better return on your investment over time. But remember that higher down payments usually mean higher monthly mortgage payments.
Like insurance, homeowners’ association (HOA) fees can be another significant expense for million-dollar homeowners. With an HOA, you and your neighbors form a corporation or special purpose district that takes care of everything from trash collection to landscaping. The group collects monthly fees from each homeowner—often as much as $1,000—and then pays for everything from minor home repairs to maintenance of common areas. Be aware: HOAs don’t come cheap. On average, a homeowner with a million-dollar home would spend at least $12,000 yearly in HOA fees alone. Other factors to consider when buying include the size of your mortgage and how long you plan to stay in the house before refinancing or selling. For example, many people who buy homes for more than $500,000 get mortgages with 20% down; this results in lower monthly payments but higher interest rates over time.
There are also tax considerations when buying million-dollar homes. Spending more than $1 million may be subject to state and local taxes and special federal tax rules. For example, some states charge different property taxes for new construction and existing homes, while some municipalities don’t collect any property taxes.
In summary, purchasing a million-dollar house will push you towards the top-end of your tax bracket if you’re planning on an extensive investment portfolio. With home prices rising here, finding an affordable home has become increasingly challenging. Buying a home now could cost close to $1 million. Therefore, homeowners should consider saving up money to afford a home.
We hope you found this blog post How to Afford a Million-Dollar Home on a Middle-Class Person in California? useful. Be sure to check out our post 5 Moving Tips That Can Help Your Real Estate Clients for more great tips!
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