In America, many people dream of buying a house in California- the Golden State. California offers the diversity of big cities like Los Angeles. Then again you can also enjoy the tranquility of Santa Barbara. But buying a house in California can be confusing, especially for first-time homebuyers. According to the California Association of Realtors (CAR), California’s median home price is expected to be $860,300 in 2024. So, you should know the appropriate process before deciding to invest. This article will guide you through the steps to buy a house in California.
5 Steps to Buy a House in California
Financial Preparation
At the very first step, assessing your financial situation is essential. Only then you can create a realistic budget. Home affordability calculators will assess your income, expenses, and debts and evaluate your mortgage payment ability. Houses in California are indeed expensive. But the cost varies with the location.
How Much Do You Need for a Down Payment in CA?
The down payment amount can be up to 20% in CA. Also, it can be a minimum of 3% in the case of conventional loans. You can have the option to put less money down. For that, the lender may ask you to get private mortgage insurance.
Home Buying Down Payment Assistance Programs in California
Down payment assistance programs lessen your hurdles of managing a down payment. The programs are designed for first-time home buyers. Also, buyers whose income falls below the median income are eligible for the programs. The first-time homebuyers assistance programs in California are:
- CalHFA Forgivable Equity Builder Loan
- CalHFA’s Myhome Assistance and Zero Assistance Program (ZIP)
- California Dream for All Shared Appreciation Loan
Although there are certain requirements to avail of these assistance programs. CalHFA requires a minimum credit score of 660 to 680.
Credit Score Requirement for a Home Loan
You will need a credit score above 650 depending on the loans. To improve your credit score, you can review your credit report and check what goes against your favor. First, try to pay off all the balances every month. Besides that, limit requests for new credit and avoid defaulted accounts.
Find out the Right Mortgage
In this step of buying your house in California, you need to get a pre-approval for a mortgage. You can find the best lender by comparing the bank rates. Some of the best mortgage lenders in California are:
- Veteran United Home Loans
- Bethpage Federal Credit Union
- Wells Fargo,
- First Mortgage Direct
- New American Funding.
The pre-approval shows the maximum amount the lender is willing to give you as a loan. It helps you to decide the price range of buying a house in California. The lender evaluates financial documents before giving pre-approval for a mortgage.
Mortgage Options in California
To compare the bank rates, you have to evaluate different mortgage options. Buyers should select mortgage options according to their eligibility and needs. Some of the mortgage options are:
- Conventional home loans
- VA loans
- FHA loans
- Jumbo loans
- USDA loans
House Hunting in the Right Neighborhood
Finding the best house in your desired location requires some effort. First, you need to gain knowledge about the diverse housing market and consider an appropriate location. The living cost in California is quite high. So, your budget is a vital issue in selecting a location. But the living cost is a bit lower in many areas. For example: the cost of living in Sacramento is less than in Los Angeles.
Now, it’s time to search for your dream home. A real estate agent will guide you through the search process. Their expertise in the local real estate market will help you to compare the offers. Thus, you can pick the best house according to your budget.
You can find properties with your desired needs on the property search sites. Check the listing websites with the latest and comprehensive information. Plan your visit carefully when you are visiting open houses. It’s always better to prepare necessary questions beforehand. Look beyond the staging and take your agent with you. Then check the neighborhood well.
Make an Offer and Negotiate to Buy CA Home
The next step to buy a house in California is making the offer. The offer price, contingencies, and proposed closing date are written in the proposal. Your real estate agent will help to negotiate efficiently. The offer price should be competitive but realistic.
The offer may include an earnest money deposit. It is usually 2% of the purchase price. It is paid to make the house off-market before closing as an incentive to the seller. The earnest money is adjusted with the down payment later.
Closing
You can proceed with closing when the offer is accepted by both parties. Make sure to get done with the home inspection appraisal process. If all goes well, you can close the deal. In this step, you have to pay all the closing costs.
Closing Costs of Buying a House in California
The closing cost of buying a house in CA is 2% to 5% of the purchasing price. Some of the closing costs are loan organization fees, agent fees, appraisal fees, and title search fees.
Escrow Process to Buy a California House
Escrow agents handle the transactions of the buyers and sellers. They ensure the security of transactions. The buyer deposits the funds in the escrow account. Here both parties submit essential documents to the agent. The money is released once all the contingencies of both parties are met. The agent closes the escrow account after the transfer of ownership.
The Final Walkthrough and Closing
You are now at the final stage of buying a house in California. Schedule your final walkthrough to check the property’s condition before signing the papers. The appliances should work properly and the seller should complete any agreed-upon repair.
Finally, you have to sign tons of documents to close the deal. Some of the documents are title transfer, final loan application, and deed. You may find it difficult to understand the legal terms of these documents. So, it is wise to consult with a real estate attorney.
And congratulations, you got the keys to your dream house! You have completed all the steps to buy a house in California. The process may seem daunting. But you can smooth the way by hiring a skilled real estate agent. Their industry knowledge will support you in every step of buying a house in California.
