How To Buy a House in California
October 11, 2022
Outside of California being known for Hollywood and the state having the largest economy in the US, The Golden State is also known for being an expensive place to live. California has the third highest cost of living in the country. The median rent is $1,614 in the state and the median monthly mortgage payment is $2,357. Home prices regularly cost far above the national average but California is still a desirable option to many home buyers who want a life of luxury and entertainment.
If you’re looking to buy a house in The Golden State, you’ll need to be prepared for the entire process of buying a house in California. Luckily, this blog post goes through just that.
9 Steps To Buying a House in California
Step 1: Assess Your Financial Situation
When it comes to buying a house, many buyers think of the costs that need to be taken care of during the home-buying process. Closing costs and the down payment are important but the fees don’t end once you close on a home. There is the mortgage and then there are other fees that you have to take into consideration as well. Here are a few ongoing costs associated with buying a house in California.
- Property Taxes
- Homeowners Insurance
- HOA Fees
Property Taxes & Mello Roos Taxes
Property taxes are a standard payment when owning a home in California. The annual property taxes required is limited to a maximum of 1% of the home price but the average property tax rate is 0.73%, which is lower than the national average.
California property taxes are determined by the assessed value of a home. The assessed value at first is the same as the purchase price. However, each new year the assessed value goes up according to the rate of inflation, this caps at a 2% growth.
A Mello-Roos is a special tax district that was created in 1982 by the state of California. The Mello-Roos districts impose extra taxes on their residents to finance public improvements and services. The tax law is controversial, to say the least, but understanding the district’s laws regarding taxes is an important step in assessing your financial health.
Coverage for your Californian home has become almost a necessity with how many dangerous wildfires have appeared in recent years. On top of that, you have the dwelling or your home’s structure that needs to be covered along with natural disasters like hurricanes.
According to Policy Genius, the average cost of homeowners insurance in The Golden State is around $1,500 annually or $122. Unfortunately, most Californian homeowners insurance policies don’t cover floods or earthquakes and require that home buyers purchase separate policies for both events.
In 2020, California led the nation with 50,000 HOA residences and over 14 million residents living in those communities. The likelihood that a home buyer will encounter an HOA which means that the buyer will have to pay the fees that come with that. The average HOA costs are between $200 and $300 per month. Another huge consideration if you’re looking to buy a house in California.
Step 2: Save For a Down Payment
In California, the average home value is $775,876. With a 20% down payment, home buyers would have to pay $155,175. Most home buyers would find a down payment that high to be daunting, if not impossible.
However, there are still options for home buyers who don’t have 20% to put down. First and foremost, the belief that a 20% down payment is required to buy a home is incorrect. Most first-time home buyers make a down payment that is closer to 10%, according to the National Association of Realtors.
One of the advantages of putting down 20% on a house is that you won’t be required to pay private mortgage insurance (PMI) every month. There are also many other options for those who need a lower down payment. Conventional loans are the most common type of mortgage for home buyers and the minimum down payment is usually 3% – 5%.
Government-backed loans like FHA, VA, or USDA loans can have an even lower minimum down payment and some require no down payment at all.
Step 3: Get Pre-Approved For a Mortgage
Being pre-approved for a mortgage is when a lender checks your credit rating, job history, and income to determine if you are eligible for a mortgage loan up to a specific amount. Getting pre-approved can give you a better idea of if you will be approved for the loan when you find a house. However, pre-approval is not a guarantee that a borrower will get a mortgage loan.
Also, pre-approval can be a sign to the seller that you are a buyer that is serious and financially able to purchase a house with the ability to receive financing. It also means that the seller will be more likely to accept your offer because a pre-approval shows that you are a serious buyer with the ability to get financing.
Pre-approval, however, is only valid for 30 to 90 days so make sure you stay within this time range when using it or else you may have to pay for pre-approval again.
Step 4: Choosing Where You Want To Live
There are a variety of communities, cultures, and locations to choose from in California. From bustling metro areas to rural landscapes, California is ripe with opportunities for home buyers. It’s important to ask yourself what type of lifestyle you want. Do you want kids? A short commute to work? An isolated suburban neighborhood?
Another consideration in your home search is the average home price and the loan limits set by the county. Most counties have a loan limit of either $647,200 or $970,800.
Conforming loans, which are mortgages that are bought out by Fannie Mae and Freddie Mac, follow these loan limits but many Californian homes are more expensive than the county loan limit. For homes that are priced beyond the county loan limit, buyers need a jumbo loan to buy a house which typically has strict requirements for borrowers.
Read More: Explaining Jumbo Loans in California
Step 5: Work With a Real Estate Agent
Buying a house in California is a complex process and the housing market is constantly changing. It can be difficult for buyers to keep up with the trends and know how to navigate the market. This is where a real estate agent can be a necessity for home buyers. Having a good real estate professional on your side can be helpful to guide you through the home-buying process with minimal concerns and mistakes.
In competitive housing markets like many of California’s, a good real estate agent is imperative to work with as you will have to move quickly to the right house. Competitive or seller’s markets can make it difficult for buyers to make a deal with the seller that is best for both parties.
This is where Negotiators come in. Negotiators are top real estate agents in the USA who have closed a large volume of real estate deals and are skilled in the art of negotiation.
If you’re looking to buy a house and need help from a California real estate agent who knows how to navigate these markets, search for California Negotiators here.
Step 6: Begin House Hunting
With the help of a real estate agent, this is what could be considered the fun part of the home-buying process. The house hunt is where you’ll finally get to see all of the different types of homes available in your budget and desired location.
You’ll begin attending open houses and scheduling private showings to get a better idea of what you do and don’t like in a house. It’s important to take your time during this process and not to rush into any decision.
This is a huge purchase, and you want to make sure that you’re buying a house that you’ll be happy with for years to come. It may help to create a list of non-negotiable needs that you need in your next home against the qualities that you desire.
The things that you desire are sacrificial in the sense that you may be willing to give them up if it means getting everything on your needs list.
Step 7: Make an Offer on a House
Making an offer is a crucial aspect of the home-buying process. The offer represents your interest in the property and will serve as the basis for all negotiations afterward. It sets the precedent for how the rest of the transaction will play out, so the offer needs to be well-structured and thought out.
An experienced real estate agent can help you put together a strong offer that protects your interests, engages the seller, and helps you get the home you want. There are a variety of components to an offer and if you’re preparing one, here are a few elements to include:
- Amount of money you want to offer on the house
- Amount of earnest money deposit
- Preapproval letter
- Expected closing date
- Expected Move-in date
- Deadline to respond
Step 8: Get an Inspection and Appraisal
After your offer is accepted, the home will need to be appraised to ensure that the price you’re paying is in line with the current market value. An appraisal is when a professional inspector does a thorough examination of the property to assess its true worth apart from the listing price. An appraisal is usually required by the mortgage lender and once the appraisal is complete, you’ll be one step closer to finalizing your loan and getting the keys to your new home.
However, even though appraisals can reveal issues within the property the purpose is not to be a home inspection. It’s important to schedule a separate home inspection with a certified inspector to get a detailed report of the property’s condition.
Buying a house that has problems like a faulty roof or electrical wiring can be a nightmare and cost you a lot of money down the road. A home inspection will give you an accurate picture of the property’s condition so that you can make an informed decision about whether or not to move forward with the purchase. Many lenders also require inspections to finalize a loan.
Step 9: Close on the House
Closing is the final and most important step in buying a house in California. This is when the ownership of the property is officially transferred from seller to buyer and the mortgage is finalized for the loan amount.
In California, a real estate attorney is not required during the closing process. Buyers meet at the title company while closing on a home to sign several documents like the final loan application, deed transfer, and disclosures.
Buying a House in California? Search For a Top-Performing Agent in the Area
Buying a house in California? Then you’ll need a high-quality real estate agent to help you find a home and negotiate the best possible terms for a real estate deal. Negotiators are a new type of real estate organization that streamlines your search for a high-quality real estate agent.
These agents have proven themselves to be top performers in their local real estate markets and leading experts when it comes to buying a house.
Search to find a California Negotiator on our website.