California is the most populous state in the United States and is home to over thirty-nine million residents, coming in third behind Texas and Alaska. With the size of the state taken into consideration, buying a house in California may seem overwhelming to some. With many residents and the cost of homes continuously increasing, the home-buying process can be pretty intimidating.
We’re here to tell you that buying a home in California doesn’t need to be as tricky as it seems. With the help of InsightfulREI, we can give you the steps you need to become a California homeowner.
13 Easy Steps on How to Buy a House in California
Here’s a list of 13 easy steps on how to buy a house in California.
1. Assess Finances & Goals
We don’t always know what the future holds, but we probably didn’t think we’d be in a crazy real estate market post-pandemic. From the summer of 2021 to the summer of 2022, the home sale price in California increased by roughly 5.5%, according to the California Association of Realtors.
To assess finances and goals, the first step is to look at credit scores and determine where buyers land. The greater the credit score, the greater the chance of qualifying for a mortgage.
2. Research Programs for Down Payment Assistance
In California, some programs offer down payment assistance to buyers, such as first-time homebuyer programs. These programs are in the form of a second mortgage and have their own interest rates and payback schedules. It’s essential to know that not all lenders offer down payment assistance, and in certain situations, a lender will need to be approved to offer the program.
3. Save Money for a Down Payment
When wondering how to buy a house in California, the first step of the buying process is to assess finances and goals. As of the spring of 2022, the average down payment of buying a house was just over $100,000. When on a tight budget, this may seem like a high amount, but the total amount won’t be needed when buying a house in California.
When getting a conventional loan, a down payment of three percent of the total cost is needed when buying a house. When buying a house in California, one of the most essential tips we can recommend is to save money and reduce spending for a down payment.
When gathering a down payment for a home, there are many down payment assistance programs available, which we touched on earlier. Most down payment assistance programs are for low and moderate-income individuals.
4. Become Pre-Approved for a Mortgage
At InsightfulREI, we understand that a vital piece of buying a house is getting pre-approved for a mortgage. When attempting to get pre-approved for a mortgage, it shows that a lender has reviewed the finances and can loan a specific amount when buying a home. Getting pre-approved for a mortgage is an essential step to proving someone can buy a home.
Here are some loan options that may be available in California:
Conventional Loan
Regarding conventional loans, there are two types: conforming and non-conforming. Requirements for a conventional loan might include: a credit score of at least 620, a debt-to-income ratio of forty-three percent, a minimum down payment of five percent, and may require private mortgage insurance if the down payment is less than twenty percent.
Jumbo Loans
A jumbo loan is used when the amount is over $647,200 or $970,800, depending on the location. Loan limits continue to change each year and are common in California due to the high prices of homes. Some requirements for a jumbo loan are a minimum credit score of 700, a low debt-to-income ratio of around thirty-six percent, and a twenty percent down payment.
FHA
FHA loans are insured by the federal housing administration. When a buyer has an FHA loan, they can use a down payment assistance program for their down payment. Some requirements for an FHA loan include a credit score (which depends on the down payment amount), upfront mortgage insurance premium, and a debt-to-income ratio of forty-three percent or lower.
5. Find the Best Lender
When buying a home in California, it’s best to compare several lenders to determine who can give the best rate. When trying to find the best lender in California, each lender is trained in specific programs. For example, a borrower needing an FHA loan will have different needs than a borrower seeking a jumbo loan.
6. Find the Best Real Estate Agent in California
After successfully finding a lender, a real estate agent will guide the buyer on where to spend their loan. Having the professional guidance of a real estate agent will assist in navigating the challenges presented when buying a house in California.
7. Begin the House Hunting Process
Once the best real estate agent is picked, now the house-hunting process may begin. Browsing homes and attending open houses is the most exciting part of the home-buying process. A homebuyer knows what they want in a home and what compromises can be made to get the home of their dreams, even when buying a house in any condition.
8. Make an Offer
When a buyer is ready to make an offer on a home, it’s essential to know that buyers have a lot of bargaining power. Depending on what part of California, a home may be on the market for only a week. There are strategies to make an offer more appealing to the seller, and offering over the asking price is one of them.
In a seller’s market, buying in cash and adding fewer contingencies can make an offer strong and stand out compared to other buyers.
9. Home Inspection & Appraisal
While there are no laws stating that a home must have an inspection before purchase, a home inspection is essential, in addition to the appraisal ordered by the lender. During a home inspection, the inspector will check for any damages throughout the home. The inspector will check things such as the home’s structure, HVAC system, and plumbing.
To determine the value of a home in California, a mortgage lender will order an appraisal.
10. Choose a Homeowners Insurance
When choosing homeowners insurance in California, the cost typically ranges around $1,000 annually but doesn’t include hazard insurance. In contrast, basic homeowner’s insurance covers damages from wildfires; if in a high-risk location, it may be difficult to find homeowners insurance.
11. Negotiate Repairs
After the inspection, if any issues arise, a negotiation can be made with the seller to make certain repairs before purchasing the home. Since California has a competitive market, it’s often expected for sellers to deny repair requests. However, in a cooler market, sellers are more willing to make the required repairs.
12. Order a Title Search
When a buyer orders a title search, the title company issues a preliminary title report that is reviewed by the seller, buyer, and lender and includes property tax information, deeds, and liens. A title report ensures that the seller can legally sell the home.
Before a person can sell their home, they must address any judgments, liens, or encumbrances so the buyer can take legal ownership of the property.
13. Final Walkthrough
The final walkthrough is the last opportunity to complete an inspection of the property. A final walkthrough verifies that all required repairs are completed and that the home is in stable condition before the buyer signs the papers and closes on the house.
How to Buy a House in California: Requirements
At the beginning of every home-buying process, a home buyer may ask, “What do I need to buy a house?” The requirements on how to buy a house out in California are more straightforward than they seem. If a buyer can afford to buy a home in cash, then the buyer won’t need a mortgage.
If a buyer is purchasing a home in California using a mortgage, then the buyer will need to have:
- A good credit score, typically above 650. Based on the loan program and debt-to-income ratio, some lenders may accept lower credit scores.
- Money for a down payment. Many mortgage loan programs have down payment requirements, which vary in percentage.
- A mortgage lender, such as a credit union, bank, or online lender.
How to Buy a House in California: FAQs
1. How much money do I need to make to buy a house in California?
To buy a home in California, a person would need to make roughly around $200,000 per year.
2. What do I need to have to buy a house in California?
To buy a house out in California, a buyer will need to have a good credit score, funds for a down payment, and a mortgage lender.
3. What is the minimum credit score to buy a house in California?
To buy a house out in California, a buyer would need to have a credit score of 500 or higher to receive an FHA-insured mortgage loan.