Buying a house is one of the most significant investment decisions you’re likely going to make during your lifetime. California, the Golden State, is an excellent place to own a house.
However, the rigors that come with house buying are numerous. If you’re a first-time buyer, you might get slightly overwhelmed by the million things that would seem to be going on at the same time.
There are so many things that you have to consider before you buy a house. These factors include mortgage rates, your credit score, the type of property you prefer, and finding a real estate agent.
If you don’t do due diligence, you may end up making a terrible decision and buying the wrong home. In this article, we’ll guide you through the entire process of acquiring your property in California if you are financially ready for it.
The Pros of Owning a Property in CA
Right now, California is experiencing an all-time drop in mortgage rates at below 4%. You won’t always find such favorable rates. A 30-year plan below 4% has been available just 9% of the time since Freddie Mac started monitoring mortgage costs in 1971.
If your credit score isn’t so good, you can easily get a home loan in California at the moment. Some of the available loan plans you can get are FHA loans, a VA loan, or conventional loans from a bank. A VA loan doesn’t even require a down payment.
While employment rates are high and jobs plentiful, rent prices are also relatively high in CA. However, if you’re going to be staying here for the foreseeable future or you’re planning to start a family here, buying a house is a sound financial decision to make.
Things to Consider Before Buying a Home in California
There are some technicalities you have to consider before acquiring your California property. For example, you should determine if the house you want to buy is governed by Mello-Roos taxes. Prior knowledge of these things will ensure you make no errors during the process.
Properties located in a Mello-Roos Community Facility District have to pay a special tax that helps to finance the building and maintenance of schools, streets, parks, sewers, etc. Do due diligence and determine how much you’ll be paying in special taxes each year if you’re buying such property.
Also, a pre-approval letter from your loan broker doesn’t mean that you’ll get the final loan approval. The final loan decision is subject to a lot of things, primarily the review of your documents.
Furthermore, lending regulations and lending processes have become stricter and lengthier after the recent lending crisis. What this means is that it’s now a challenging task to close escrow in 30 days. A 45-day escrow is more advisable to help you avoid adding more stress to what’s already a strenuous process,
Availability of Houses for Sale in California
Buyer demand is at an all-time high in places like San Diego and Los Angeles. For example, in Los Angeles, the average price of a condo is $530,000, while a single-family home costs $650,000.
These prices are not likely to go down anytime soon. The California Association of Realtors has predicted that the median price of homes in the state will go up by 5.2% in 2022.
You should also remember that sellers will always prefer a cash offer over one that requires a loan payment. So if you’re up against a buyer that is offering all cash for the property you wish to buy, it’ll be difficult for the homeowner to accept your offer.
Do I Need to Hire an Attorney?
California laws do not require buyers in a real estate transaction to hire a lawyer to represent them at the closing. The Residential Purchase Agreement and Joint Escrow Instructions form are usually the only requirements to make an offer.
If the seller accepts your offer, he signs the forms, which eventually serves as the final contract.
Unique Laws Applicable Only in California
Noteworthy also is that a single agent or two agents from the same agency can represent both the buyer and the seller. This practice isn’t widely accepted, but California laws permit it.
By signing the Disclosure Regarding Real Estate Agency Relationships form, a written consent, you can carry on with your transaction. The purpose of the document is to identify the agents and brokers representing both parties in the transaction.
In California, it’s also mandatory that the home seller gives the prospective buyer an in-depth report on the architectural conditions of the property. This information is usually in a written disclosure form from the landlord.
Process of Buying a House in California
Let’s talk about how to buy a house in California. The first thing to do is to evaluate your finances thoroughly. If you’ll be needing a home loan to enable you to purchase your house, you have to start working on that.
You’ll need a credit score of 620 and a debt-to-income ratio of less than 36% to qualify for a conventional loan. A Fannie Mae loan requires up to 640 in credit scores. An FHA loan will require under 43%, while a VA loan will require under 41%.
While a VA loan doesn’t require a down payment, most conventional loans will require down payments of up to 20%. Note also that you have to pay 2-5% in closing costs. The process of buying a home in California gets relatively easier the more informed you are about the technicalities.
How Much Do I Have to Make in Down Payments?
An FHA loan has a low down payment of just 3.5%; however, you’ll have to pay Private Mortgage Insurance (PMI) for the duration of the loan. You want to make sure that you have adequate savings to cover that.
You may want to consider down payment assistance programs. These programs are usually government-backed and are in place to help first-time buyers afford a home.
Before pre-approval, a mortgage lender will want to ensure that you won’t spend more than 28% of your monthly income on future mortgage payments.
Homebuyers have to consider the interest rates on their mortgage loan. High-interest rates automatically translate to higher monthly payments. A home loan typically makes the home buying process easier, so check for pocket-friendly rates.
You should talk to a licensed lender first, especially if it’s your first house. They will walk you through the lending process.
Next, you have to find a real estate professional.
Finding the Perfect Real Estate Agent
The housing market in CA seems daunting, especially to a first-time homebuyer. Our advice to you is to get a real estate agent to assist with the home search.
While there is a large pool of real estate agents to choose from, a local real estate agent who has excellent knowledge of the local market is the best option.
For instance, if you’re considering buying a house in Los Angeles, a local agent knowledgeable about the Los Angeles real estate market will ease your home search considerably.
Go to a showing or two with the real estate agents you’re considering working with before signing the agency’s buyer agreement. It’s a test drive of sorts, and you’ll confirm beforehand that you can work with the agent before you commit.
Finding Your Dream Home
There are several things to consider when looking for a house in California. One of the most important is the cost of the property. Finding a property that caters to your taste, fits your budget perfectly, and has the potential to appreciate can be pretty tricky.
As a first-time home buyer, an agent will help you do due diligence in this aspect to ensure you don’t make a wrong decision.
It would be more pricey to buy a house in some neighborhoods in places like Los Angeles, but such properties have more tendency to appreciate over the years.
Buying Your Dream Home
The home buying process is relatively straightforward for homebuyers after finding the perfect house and confirming its price fits their budget.
If you’re using a home loan, get approval ASAP. The lender will also most likely want to come for an appraisal to determine the house’s value and if it’s worth the amount you’re taking out in the mortgage.
House Inspection and Appraisal
Perform a house inspection to determine its overall state and confirm that it’s in excellent condition. Radon testing plus termite and pest inspection come highly recommended in California. If there are repairs to be made, iron it out with the seller before you pay.
Because houses stay on the market for an average of 40 days in California, the asking price may be high. The seller will also probably be receiving multiple offers, so you’ve got to move fast once you’ve decided on a house.
Making an Irresistible Offer
Since you’re competing against other home buyers, be intentional about getting your offer accepted. Working with real estate professionals is a real plus at this point. An agent will ensure you get the best deal.
While negotiating with the seller, the property’s price isn’t the only topic to discuss. Remember you’re paying most of the closing costs from your pocket; as such, you can ask for a seller concession where the closing cost is paid by the seller and put on your mortgage.
Most sellers want to know that their house is in good hands, and your personal letter should convince them as such.
Closing the Deal
Before closing the deal, make sure you do a final walk-through of the house. This move enables you to make a final confirmation that the house is in prime condition.
It’s good practice not to start buying things that you reckon you’ll be needing to live comfortably in the new home until you have conclusively closed the deal.
Understandably, there’s an excitement to move in, and rightly so; however, several things can go wrong at the last minute.
The landlord may refuse to close escrow, or you may disagree with them concerning the repairs to perform in the house.
The landlord may even get a better offer at the final minute and decide not to sell to you anymore. Therefore, ensure you’ve signed all paperwork before you make any big buys.
Reselling Your House
The chances of selling your house as a first-time homebuyer are steep. Factors like an expanding family, work, or a desire to upgrade your standard of living may contribute to this decision. Keep this in mind while picking out a property.
To ensure you sell your house fast when the time comes, be on the lookout for high-value properties. They may be pricier, but it makes better sense in the long run.
What are the common pitfalls first-time homebuyers face in California?
First-time buyers often struggle with understanding complex real estate laws, underestimating total costs, and navigating competitive markets.
Are there any specific environmental concerns I should be aware of when buying a house in California?
Yes, be aware of issues like earthquake risk, wildfire zones, and water rights, which can affect property value and insurance costs.
How do property taxes work in California, and how can they affect my home purchase?
Property taxes in California are based on the purchase price and can be impacted by factors like Proposition 13 caps and Mello-Roos taxes.
Is it better to buy a new or older home in California?
It depends on your preferences and budget. New homes may offer modern amenities but can be more expensive, while older homes might require more maintenance but could be in established neighborhoods.
Can I negotiate closing costs in California?
Yes, closing costs are negotiable, and buyers can ask sellers to cover some of these expenses in their offer.
Whether you’re a first-time or a returning buyer, owning a house in California is a wise financial decision. As a first-time homebuyer, you have complete assurance that your monthly costs will reduce considerably since you don’t have to pay rent.
And although the process is long and often complex, it’s a walk in the park with the correct information and help from professional agents. Now that you know how to buy a house in California how about getting to work immediately?
Buyers are snatching up homes in California quickly at the moment, and there isn’t a better time to buy a house in CA than now. Low availability of places also means that if you decide to sell your house, you can rest assured that it will be off the market in as little as 50 days.