How Much Money Do You Need To Buy a House In California?

California is one of the states in the US with a pretty steep price tag on houses available. The real estate market is large due to the constant influx of new residents and highly desirable weather, making it highly competitive as well. Given this information, how much money do you need to buy a house in California?

How Much Money Do You Need to Buy a House In California?

If you’re making a cash purchase, to cover the average cost of a home in California, you would need a sum of $599,159. Paying with a mortgage would typically require a down payment; 3 to 5% or 17,974 to 29,957 for a conventional loan, 3.5% or $20,970 for a Federal Housing Administration (FHA loan), and nothing at all, outside of closing costs for a Veteran Affairs (VA) loan. 

Calculating How Much Money You Need To Buy A House In California

When it comes to calculating how much money you would need to buy a house in California, a range of factors come into play, however, the two most vital, deal-breaking ones are:

  • The state of your finances
  • Your choice of realtor
White and gray houses in a residential area in California

The State of Your Finances

By examining the state of your finances, you will be able to determine whether you can pay with cash or take out a mortgage, as well as the kind of mortgage that would work for you. If you opt to take out a mortgage, several financial factors would affect your eligibility:

  • Credit score
  • Future mortgage payments
  • Down payment
  • Closing costs
Credit Score

Getting a mortgage is relatively easy as lenders are beginning to lower borrowing requirements that previously disqualified a significant number of prospective buyers. 

Most conventional loans require a credit score of at least 620. If you do not have up to 620, you would not be eligible. However, there are other loans backed by the government that allow lower credit scores, sometimes as low as 500.

Credit score usually impacts interest rate. A higher credit score usually implies a lower interest rate. The specific credit score requirement is determined by the loan type, however, government-backed loans generally have a lower credit score requirement relative to conventional loans.

Type of loanCredit score requiredDesigned for
FHA (Federal Housing Administration)500-580 Low to moderate-income buyers
VA (Veteran Affairs)620 and aboveVeterans buying homes
Conventional loans620 and aboveHomebuyers seeking traditional mortgages
Future Mortgage Payments

Calculating how much you can afford to spend on future mortgage payments every month determines:

  • The appropriate loan type 
  • The amount you can afford to spend on a house

When considering whether to support your home loan, most lenders follow the 28/36 principle- that is, your housing costs shouldn’t surpass 28% of your monthly income and all your debt payments shouldn’t be over 36% of your monthly income (this number is your Debt-to-Income Ratio). 

Down Payment

Demonstrating your readiness to buy a house requires making a down payment. This is a lender requirement as well. If you’re opting for a conventional loan, you’ll need a down payment of about 20%, however, you could pay 3 to 5%, but you would be required to pay private mortgage insurance. FHA loans on the other hand require only 3.5% while VA loans are downpayment-free.

Closing Costs

Finalizing a house purchase deal requires payment of closing costs. These costs are incurred through the process of the transaction, and for a buyer, including such costs as:

  • Inspection fees
  • Appraisal fees
  • Title insurance
  • Property taxes
  • Homeowners’ insurance, amongst others

Closing costs are typically paid out of pocket. However, they can be negotiated and some of the costs split with the seller. Your CA Flat Fee realtor can be a key figure in this negotiation.

Person calculating the cost of buying a home in California

Your Choice of Realtor

Hiring a local realtor can make all the difference in your experience as a home buyer. This is because your realtor handles some sensitive aspects of the transaction and can help you save some money or cost you extra. 

Realtors basically steer real estate transactions in the direction that they should go. This is why opting for a great realtor agency like CA Flat Fee is key. 

Your CA Flat Fee realtor helps out with:

  • Property scouting
  • Pointing you to a mortgage lender
  • Making offers
  • Home inspection and negotiations
  • Closing and paperwork, amongst others
Property Scouting

This is an important aspect of your home purchase. Following a detailed conversation with your realtor, you can start to look for the best house match within your budget. Your realtor would also factor in metrics like resale value to ensure that you likely make a profit if you sell in the future. 

Finding a Mortgage Lender

Your local realtor is in the best position to link you up with a trusted lender. In addition to this, your CA Flat Fee realtor can guide you through the mortgage pre approval process. There could be some technical jargon involved at this point, and your agent can help guide you through this process. 

Home Inspection and Negotiation

As a home buyer, an important part of the process where you may miss key details is during the home inspection. A local realtor has a wealth of experience in such a situation and would be able to check for important details that are easily missed. It is also best to have your realtor handle the negotiations since they are a professional in that sphere.

Closing and Paperwork

Your CA Flat Fee realtor will communicate all the necessary information during the closing of the home as well as guide you through the likely mountain of paperwork. There are complex terms and important documents that might be a tad difficult to understand without your realtor breaking down the content.

Conclusion

Whether you are paying upfront or taking out a mortgage, you should understand the financial implications of buying a house in California, and how much money you need to complete the purchase. To make the process hassle-free, and ensure all your questions are answered, your choice of realtor is essential.