Do you intend to purchase your first property in California? The path to homeownership can be thrilling, but it can also be daunting. Fortunately, there are numerous programs and strategies available to assist. We’ll go over a few of them with you. That’s why we have crafted this post to help you with all you need to know on how to buy a house in California.
8 Steps on how to Buy a House in California
How to buy a house in California is wonderful, but it is not without its challenges. Everything from the local economy to your personal finances to the California housing market will influence the home you buy and how much it costs.
The more you understand the stages involved in ow to buy a house in California and current real estate trends in California, the more equipped you will be to make informed decisions.
Locating the perfect agent might make all the difference when it comes to finding your dream house. Clever is a free service that connects you with local realtors from well-known firms like Berkshire Hathaway and Keller Williams.
What’s the best part? When you purchase a property with Clever, you may be eligible for a cash-back return of up to 0.5 percent of the purchase price. You’d get $2,500 if you bought anything worth $500,000. That’s actual cash in your pocket!
Read Also: AVERAGE INCOME IN CALIFORNIA: Real Average & Median Income in California 2023
#1. Evaluate your financial situation
If you wish to know How to buy a house in California with a mortgage, you must first understand how your financial status affects your purchasing possibilities.
We’ll go into more detail below, but here are the financial considerations you should make before purchasing a home:
Purchasing a home is a difficult task. It’s not easy to figure out where to begin, how much you can pay, and what “amortization” means on your own.
What is the most effective method of learning? Speak with a licensed lender who will be able to answer your questions and walk you through the process.
#1. Future mortgage payment
Determine How to buy a house in California fee you can afford to spend on your mortgage each month is the first step in getting your finances in order.
Most lenders follow the 28/36 rule when evaluating whether to approve your mortgage:
- Total housing costs (including your future mortgage) shouldn’t exceed 28% of your monthly income
- Total monthly debt payments shouldn’t be more than 36% of your monthly income (this number is called your debt-to-income ratio)
So, let’s use the median monthly income in California, which is $6,273 (based on Census data), as an example to calculate a potential mortgage payment.
$6,273 x 28% = $1,756
#2. Debt-to-income ratio
Lenders want to know that you’ll be able to make your monthly payments. They do this by calculating your debt-to-income ratio (DTI) once you take out a mortgage.
The higher your debt-to-income ratio, the less likely you are to get approved for a mortgage; but, if you have a high credit score, most lenders are more forgiving. While certain lenders will approve mortgages for borrowers with DTIs as high as 43 percent, it’s better to keep your DTI under 36 percent in the majority of circumstances.
Divide your gross monthly income by all of your recurring monthly loan payments, plus your expected mortgage payment, to get your DTI (before taxes).
Don’t forget to factor in the following when calculating your monthly loan payment:
- Minimum credit card payments
- Student loans
- Auto loans
- Alimony or child support
- Personal loans
- An estimate of your mortgage payment
Let’s look at a few examples, using the average amount of debt in how to buy a house in California, to see how to calculate the debt-to-income ratio.
#2. Choose the right neighborhood
The location of a property is equally as significant as its design and characteristics. To determine which place is appropriate for you, take into account the following factors:
#1. Home values
You should have a decent sense of your home-buying budget after completing Step No. 1. To start narrowing down your selections, do some research on current sale prices in different communities so you don’t end up looking at houses that are out of your price range.
Also, look at previous house value trends to get a sense of how much your property’s value could increase over time. You want an area that fits your budget while also providing a high return on investment if you decide to sell.
Let’s look at some instances of how properties in three Los Angeles communities have appreciated through time to give you a sense of how appreciation can affect what your house is worth in the future.
#2. Local lifestyle
You’ll need to assess how well each region suits your own wants and preferences once you’ve made a list of neighbourhoods you can afford and that is a solid investment.
Check out the following neighbourhood features to round out your selection of target areas:
- School districts
- Restaurants and amenities
- Crime rates
- Walkability
- Transportation options
#3. Find a great real estate agent in California
During the home-buying process, your real estate agent will be your most trusted ally. They can also refer you to additional services such as lawyers, lenders, and escrow businesses, in addition to searching and showing you property. And once you’ve found a home, it’ll be up to your agent to negotiate a good price for you.
Take the time to research different agents who are experienced in your desired part of town and price range. Pay attention to realtors’:
- Years of experience
- Number of transactions in the last year (the more the better)
- Experience in your price range and chosen neighborhood
- Overall review score
- Individual reviews and complaints
Schedule interviews with your top 3-5 possible agents once you’ve narrowed down your list to see if they’d be a good fit. Inquire about the school system, property value trends, and any planned projects in the area you’re considering to determine if they have the expertise and experience to assist you in making an informed selection.
Also, before signing a buyer’s agency agreement, you can attend showings with an agent (or multiple agents). This is popular, and it allows you to take a realtor for a “test drive” to determine if they match your needs before committing to work with them.
#4. Get pre-approved for a mortgage
Most sellers will not show you their home unless you have a letter from a lender stating that you are pre-approved for a mortgage. They don’t want to waste their time with purchasers who aren’t serious about making an offer or who aren’t financially prepared to do so.
Pre-approval for a mortgage gives you and the seller peace of mind that if they accept your offer, you’ll be able to secure financing and complete the transaction.
#1. Compare interest rates
While there are a variety of mortgage terms available, the majority of conventional loans are for 15, 20, or 30 years. You’ll save money on interest with a shorter-term mortgage, but your monthly payment will be greater.
Let’s look at how the figures break down for loans with various maturities for a home valued $599,159, California’s median home value (assuming a 20 percent down payment).
#2. Choose a Lender
Aside from interest rates and loan terms, you’ll want to select a lender who will actively work with you to ensure that the transaction goes through.
If the lender’s underwriting procedure is delayed, or if they take an eternity to get you all of the required papers, your entire transaction could be thrown off.
#3. Maintain your credit
It’s critical that your financial condition doesn’t alter once you’ve been pre-approved for a mortgage. If your credit suffers a setback, you may be unable to complete your home purchase.
Here are a few simple strategies to keep your credit from changing once you get your pre-approval letter:
- Avoid opening new credit accounts
- Don’t close any accounts that have been open for a long time
- Make all of your credit card payments on time
#5. Start house hunting in California
Viewing houses is one of the most enjoyable aspects of the home-buying process! But keep in mind that you’ll have to make a huge decision about which one is best for you at some point.
Here are some of the most significant things to keep in mind when comparing homes:
#1. Make a list of priorities
Begin by making a list of everything you desire in a home. Rank each item in order of importance to you. This will assist you in distinguishing between “must-haves” and “good to have.”
Then talk to your agent about whether or not your list is feasible. They are familiar with properties in your price range and target neighbourhood and may advise you on where you may need to make compromises.
Have faith in your agency. They may show you a variety of properties as long as you stay within your price range, and they might even surprise you with a house you wouldn’t have considered otherwise.
#2. Look at current housing inventory
When you begin looking for a home, it has an impact on the number of possibilities available to you. When it comes to How to buy a house in California, for example, May is traditionally the month with the most residences on the market. In November, however, there are nearly 21% fewer properties available.
When there is a shortage of properties on the market, you may have to be less selective when choosing a home to bid on.
#6. Make offers
It’s time to make an offer and persuade the seller to sell to you once you’ve found a home you want. The seller may not accept your offer if you don’t know when to make it or how to make it more appealing.
#1. How long you have to make an offer
Homes in California are now on the market for an average of 40 days. However, every market undergoes seasonal variations. Homes are snapped up more swiftly in some months than others.
Depending on when you’re looking for a home, you might have to make an offer sooner than you think especially if homes are on the market for fewer days than the annual average.
According to the table below, the best time to sell is in October, when homes only stay on the market for 40 days. However, if you’re looking to buy in January, you’ll have more time to think about it because houses typically stay on the market for 32 days longer than the annual average.
If you’re unsure, contact your agent. They can tell you how soon you need to make an offer on your dream home.
#7. Inspections and appraisals
When a seller accepts your offer, you must go through a series of due diligence procedures to guarantee that the home you’re buying is precisely what you expected. If something unexpected comes up after the inspections and evaluations, you’ll have an opportunity to return to the negotiation table.
#1. Inspections
Inspections give you peace of mind about the condition of the property. You should always hire a licensed inspector and make sure they check out the following parts of the property:
- Roof
- Foundation
- Electrical system
- HVAC system
- Plumbing
If the home has a septic system, it’s also a good idea to pay for a septic inspection that scopes out the system with cameras to look for any potential issues.
#2. Appraisals
Unlike an inspection, an appraisal focuses on the home’s value rather than its condition. If you’re getting a mortgage, your lender will want to see an appraisal to make sure the house is worth the amount you’re borrowing.
#8. Final walkthrough and closing!
You’ll be able to do a final walkthrough of the property when it’s time to close to ensure it’s still in good condition. Stay focused so you don’t miss anything, even if you’re eager for the buying process to be over.
Make sure to go over the following checklist during the walkthrough:
- Inspect the ceilings, walls, and floors for cracks, chipped or peeling paint, or other imperfections
- Test every light switch and electrical outlet
- Run the water to look for leaks and check the pressure and temperature
- Flush all toilets
- Make sure you have working keys for all the doors (don’t forget any garage door openers or smart lock technology)
- Test any appliances that are included in the sale
- Check the heating and air conditioning system
- Open and close all windows while checking that they lock and there are no unexpected drafts
- Make sure all trash or belongings from the previous owners have been removed
On closing day, be prepared to sign a ton of paperwork. Your agent (or your lawyer) should explain every document before closing, but still, ask any remaining questions you have before signing.
How to buy a house in California with no money
There are a number of options for purchasing a property in California with no money down (or at least, none of your own). For example, you might be able to get the funds for your down payment as a gift from a family member. This is now permitted by the majority of mortgage lending programs. The VA financing program allows military personnel to purchase a home in California with no money down.
Let’s take a deeper look at these and other no-money-down home-buying techniques.
#1. Using Down Payment Gifts
You may be able to use gift money to fund your down payment whether you use an FHA or conventional mortgage loan to purchase a home. This is money given to you by a family member, employer, or other approved donor to cover the loan’s investment requirement.
The entire down payment can be gifted from a family member or other approved source with some mortgage programs, including the popular FHA loan. This would enable the buyer to buy a home in California without putting any money down. This is also possible with many conventional, non-FHA loans.
The only condition is that the money donated by a third party is actually a gift. It can’t be a ruse for a short-term loan. In fact, the donor will be required to sign a “gift letter” stating that no repayment is expected.
A down payment is still using this technique. However, it is by someone other than the purchaser. So that’s one way to buy a home in California without putting any money down.
The VA loan program provides another good option for military personnel. So let’s go into that now.
#2. VA Loans for Military Members
Because the VA loan program provides so many benefits to our brave men and women in uniform, we are passionate about it. It’s difficult to beat this program if you’re a military member. It allows qualified borrowers to purchase a home in California with no money down.
In most cases, a VA-guaranteed home loan can cover 100 percent of the purchase price. There is no need for a down payment as a result of this. This program may also assist borrowers in avoiding mortgage insurance, which is typically for loans exceeding 80% of the home’s value.
#3. Down Payment Assistance Programs
There are initiatives in place in the state to assist homebuyers with the expense of a down payment. One example is the California Homebuyer’s Downpayment Assistance Program (CHDAP). Eligible borrowers could get a deferred-payment junior loan up to 3% of the home’s purchase price under this program. This money could be to make a down payment on a house.
This program is only available to first-time homebuyers, as the name implies. However, the state’s definition of a “first-time” buyer is fairly broad. A first-time buyer is defined as “someone who has not owned and occupied their own home in the last three years,” according to the official program eligibility guidelines.
This program allows you to purchase a property in California with no money down, but it is not “free money.” It’s a loan that needs to be repaid. However, it alleviates the stress of making a substantial upfront out-of-pocket investment.
What qualifies you as a first-time home buyer in California?
To be certain, you should be aware that a first-time purchaser is someone who hasn’t bought and lived in their own home for the previous three years. You are a first-time homebuyer if you have never owned a home.
What credit score is good to buy a house?
When applying for a traditional loan, it is advised that you have a credit score of at least 620. Lenders may be compelled to offer you a higher interest rate or may be unable to approve your loan if your score is below 620, which could result in higher monthly payments.
What is the average age of a first time home buyer in California?
A first-time home buyer in 2023 was 33 years old on average. The average age of first-time homeowners has stayed largely constant over time, although the average age of repeat buyers has been increasing.
What credit score is needed for a $250000 house?
While credit score requirements differ depending on the type of loan, mortgage lenders often want a 620 credit score in order to obtain a conventional mortgage.
How big of a loan can I get with a 650 credit score?
With a 650 credit score, you are eligible to borrow between $40,000 and $100,000. Your income, work position, the sort of loan you receive, and even the lender all have an impact on the precise amount of money you will receive.
What is a good credit score for a 300k house?
A credit score of at least 620 is needed for a conventional loan, but it’s best to have one of 740 or higher because you might be able to make a smaller down payment, get a more enticing interest rate, and avoid paying for private mortgage insurance.
FAQ
Is buying a house in California hard?
First-time homebuyers have just received some bad news: California has been pegged as the hardest state in the U.S. to buy a home. This is the fourth-highest rate in the nation, and more than 60 percent of those rented homes are occupied by families.
How do people afford homes in California?
California Real Estate Is Flush With Family Money. KPCC crunched the numbers on more than 600,000 FHA loans, a type of government-backed mortgage that’s common with first-time buyers. FHA borrowers can use money from relatives for their down payment.
What's the best time to buy a house?
The best time to buy a house often ends up being in the late summer or early fall. Around this time, there tends to be less competition than at the peak during the spring and summer, but still a fair number of houses are on the market.
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