8 Steps to Buying a House in California

Clever Real Estate

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Clever Real Estate

October 3rd, 2022
Updated October 3rd, 2022

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8 Steps to Buying a House in California

Save for down payment | Find a real estate agent | Get preapproved for a mortgage | Choose your neighborhood | Go house hunting | Make an offer | Inspections and appraisal | Final walkthrough and closing

Buying a house in California is an exciting milestone, but the process can take some time. Several factors, like your financial situation, market conditions, and the local economy can affect both how long it takes you to find a home and how much it costs you.

The more you know about the home buying process and California's current real estate trends, the more prepared you'll be to navigate this complicated process as quickly and smoothly as possible.

No matter where you are in your home buying journey, Clever can connect you with local real estate pros who will help you purchase your California dream home!

The best part? When you buy with a Clever real estate agent, you could earn a cash-back refund worth up to 0.5% of the home price. On a qualifying $300,000 purchase, you'd get $1,500. That's real money back in your pocket!

» START: Buy with a top local agent, save thousands with Clever Cash Back

Step 1: Save for a down payment

🔑 Key takeaway:

Your down payment can be less than 20% of the purchase price — $155,175 for the typical home in California — but you'll have to purchase mortgage insurance and pay more interest over the life of your loan.

Your down payment is the first part of your home's purchase price that you pay at closing. Your mortgage lender will pay the remaining balance.

Typically, mortgage lenders in California want you to contribute 20% of the purchase price as a down payment. That would be $155,175 for a $775,876 home — the typical home value in California.

However, you have options to lower your down payment amount.

Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).

Mortgage type
Minimum down payment (%)
Down payment ($)
VA Loan
0%
$0
FHA Loan
3.5%
$27,156
Conventional
3%
$23,276
Based on typical home values from Zillow (August 2022)

But making a down payment of less than 20% comes with some risks.

First, because you're borrowing more money, you'll have a higher monthly payment and pay more in interest over the life of your loan.

Down payment
Monthly payment
Total interest
Total Cost
5%
$4,194
$772,875
$1,548,751
20%
$3,532
$650,842
$1,426,718
Based on home values from Zillow (August 2022) and a 5.52% interest rate for a 30-year loan.

Second, you may have to purchase mortgage insurance.

Conventional loans require private mortgage insurance (PMI) until your loan balance reaches 80% of the purchase price. FHA loans, on the other hand, require a mortgage insurance premium (MIP) for the life of your loans.

Mortgage insurance costs around 1% of your mortgage balance annually. However, rates vary based on your down payment and credit score. Typically, your mortgage insurance payment is added to your mortgage payment each month.

VA loans don't charge mortgage insurance. Instead, you'll pay a VA loan funding fee at closing, which can range from 1.4% to 3.6% of the purchase price.

» READ MORE: Everything you need to know about low-income home loans

California down payment assistance programs

Thousands of down payment assistance programs are available across the U.S. to first-time and low-income homebuyers. In California, eligible applicants may receive a government grant or a second mortgage with deferred or forgiven payments.

Here are some of the down payment assistance programs available to homebuyers in California:

MyHome Assistance Program

California Housing Finance Agency’s MyHome Assistance program is available to first-time homebuyers. The program offers a maximum of $15,000 or 3.5% of a home's purchase price as a second mortgage.

Borrowers must not earn more than the maximum household income limit set by the California Housing Finance Agency. You can check their income requirements here. Participants will also need to complete a homebuyer education and counseling course.

GSFA Platinum Program

The GSFA (Golden State Finance Authority) Platinum Program offers up to 5% of the home's purchase price for the down payment and closing costs. The assistance is given as a 0% second mortgage and is forgiven three years after the escrow closes.

The program isn't limited to first-time homebuyers, but borrowers must have a credit score of 640 or above. There are maximum income limits depending on what kind of mortgage you have. You can learn more about the requirements here.

GSFA OpenDoors Program

The GSFA OpenDoors Program provides up to 7% of the first mortgage loan amount to low-to-moderate income homebuyers. The program comes as a second mortgage, and the funds may be used to cover a down payment or closing costs.

The second mortgage has a 30-year term, but doesn't accrue interest or require monthly payments. Payment is due after the borrower's first mortgage is paid off or refinanced.

The OpenDoors Program is not limited to first-time buyers, but income limits apply. You can check if you're eligible for assistance here.

U.S. Department of Housing and Urban Development

Additional programs in California can be found on the state's HUD page.

Step 2: Find a great real estate agent in California

🔑 Key takeaway:

Interview multiple agents to find one who knows your target neighborhoods, has experience in your price range, and communicates well.

Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent will help you make offers, negotiate contracts, and navigate the closing process. Plus, they can recommend other service providers like title companies and inspectors to help you buy your home in California.

Don't rush into choosing an agent. Instead, take the time to research and interview multiple real estate agents who have experience in the neighborhoods you're interested in. You should pay attention to a realtor's:

  • Years of experience
  • Number of transactions in the last year (the more the better!)
  • Experience in your price range
  • Overall review score
  • Individual reviews and complaints

Top Local Agents Hand-Picked for You!

Clever matches you with multiple agents in your area so you can interview, compare, and choose the best one to help you buy your next home.

Step 3: Get preapproved for a mortgage

🔑 Key takeaway:

Once you're preapproved for a mortgage, it's imperative that your financial situation doesn't change. If your credit drops, it can derail the process and keep you from closing on your house.

Here are some easy ways to ensure your credit doesn't change after you receive your preapproval 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

» LEARN MORE: What factors do mortgage lenders consider?

A mortgage preapproval letter is an offer to lend you up to a certain amount of money to purchase a home. It shows sellers that you are a serious buyer who is financially qualified to make an offer on a home.

Most sellers in California will require preapproval before showing you their home.

You don't have to decide on one lender right now. In fact, you should compare interest rates and preapproval amounts from several lenders to make sure you're getting the absolute best terms when you buy your California home.

Get Pre-approved Today!

Get matched with a lender who can tell you how much house you can afford. To get started, where do you plan on buying?

Step 4: Choose the right location

🔑 Key takeaway:

Search for neighborhoods where:

  • Home prices are within your price range
  • Home values are on the rise
  • The local amenities support your lifestyle

Currently, the typical home value in California is $775,876, but don't worry if that doesn't perfectly match your budget. Home prices vary dramatically from city to city and even from neighborhood to neighborhood!

Also, look at past home value trends. This will give you an idea of how much your home's value could go up over the next few years.

To give you an idea of how appreciation could impact what your house is worth in the future, consider these examples from three neighborhoods in Los Angeles:

Home value appreciation in Los Angeles

Neighborhood
2015
Current
Appreciation
Van Nuys
$425,398
$828,315
48.6%
Sylmar
$395,612
$740,272
46.6%
Sherman Oaks
$808,787
$1,449,657
44.2%

Step 5: Start house hunting in California

🔑 Key takeaway:

Housing inventory in California has spiked over the past year, and with listing prices staying the same, it’s a great time to hunt for a house. There will be a lot of options to choose from, and the chances of finding the perfect home for your budget is high — but expect competition in the state to be fierce. For the best results, communicate all your must-haves and negotiables with your realtor to narrow down your choices and find the perfect house for you as quickly as possible.

Searching for homes in California is the fun part of the home buying process! You'll get to look at a variety of homes and discover what you really want in a home.

Make a list of everything you want in a home and prioritize them. At the top of the list should be the items that are most important to you. This will help you separate your "must-haves" from your "nice-to-haves."

Your agent can help you understand if your wants are realistic for your budget and favorite neighborhoods or if you need to rethink what you're looking for.

Look at current housing inventory

The timing of your house hunt in California can have a big impact on your number of options. For example, in California, May has historically seen the most homes for sale. Searching in this season could give you more options and a greater likelihood of finding your dream home.

On the other hand, December gives you the fewest choices in California. Historically, there are 45.8% fewer homes for sale than during California's peak season.

Housing inventory in California by season

Season
New listings per month
Spring
45,413
Summer
46,119
Fall
40,590
Winter
33,629
Based on data from Realtor.com (September 2022)

Step 6: Make an offer

🔑 Key takeaway:

Increasing demand in California is causing homes to fly out of the market in record time, so don’t delay in making an offer on the house you like. Although there is a lot of inventory in the state, the active market may cause you to miss out on a great home if you don’t act fast. Talk to your real estate agent to work out all your contingencies and concessions so you can act quickly and make a strong offer even on the same day as viewing.

Once you find a California house you love, it's time to make an offer. Your real estate agent will help you write a compelling offer that gives you the best shot of convincing the homeowner to sell to you.

Currently, in California, homes stay on the market for 45 days before going under contract. However, every market goes through seasonal changes. During busier months, homes get snatched up more quickly than others.

Historically, California homes sell fastest in June, where the average property is only on the market for 39 days. If your home search falls around this time, you should be prepared to move quickly and potentially make offers on several homes before yours is accepted.

On the other hand, if you buy in January, you have a bit more time to search. Homes typically stay on the market 15 days longer than California's annual average.

Average time homes spend on market in California

Annual average
45 days
January
61 days
February
44 days
March
39 days
April
39 days
May
39 days
June
39 days
July
41 days
August
42 days
September
46 days
October
47 days
November
50 days
December
60 days
Based on data from Realtor.com (September 2022)

» LEARN MORE: What should an offer include?

👋 Next Steps: Talk to an expert!

If you're weighing your options for buying or selling a house, Clever can help!

Our fully-licensed concierge team is standing by to answer questions and provide free, objective advice on getting the best outcome with your sale or purchase.

Ready to get started?

Give us a call at 1-833-2-CLEVER or enter your info below. Our concierge team will be in touch shortly to help.

Remember, this service is 100% free and there’s never any obligation.

Step 7: Inspections and appraisals

Inspections and appraisals are an opportunity for you to better evaluate the home's condition and value before officially purchasing it. You may have an opportunity after this step to renegotiate the terms of your contract with the seller if something unexpected pops up.

🔑 Key takeaway:

  • Inspections: A licensed professional checks the house for any unseen, unexpected, or potential issues.
  • Appraisals: An appraiser hired by your lender examines the house to determine how much it's worth.

Home inspections in California

Having your California home inspected by a licensed inspector gives you peace of mind about the condition of the property before you commit thousands of dollars to purchase it.

Your inspector should check out the following parts of the property:

  • Roof
  • Foundation
  • Electrical system
  • HVAC system
  • Plumbing

If the home has a septic system, you should also pay for a septic inspection to make sure it doesn't have any problems that wouldn't be covered in a typical home inspection.

California-specific inspections

California has strict disclosure laws, but it’s still recommended for homebuyers to have additional tests done before closing. Here are a couple good inspections to consider:

  • Radon testing: Certain parts of California, including Santa Barbara and Ventura County, can have elevated radon levels. California residents can order a free radon testing kit to make sure the chemical isn't present in a potential home.
  • Termite inspection: Certain loans require pest inspections, but it's a good idea for all buyers to complete this process. Termites and other pests can affect the safety of a home, pose possible health hazards, and lead to bigger extermination fees later. Getting a pest inspection before closing will ensure that your future home will be safe and termite-free.

Appraisals

Appraisals determine the value of the property. If you're using a mortgage to buy your new home, your lender will order an appraisal to make sure the home is worth the money that it's loaning you.

» LEARN: 3 options for buyers after a low appraisal

Step 8: Close on your new home!

🔑 Key takeaway:

Before you close on your new home, you and your agent will do a final walkthrough of the property to ensure that it's still in the expected condition.

The closing process in California simply consists of signing all the necessary documents and paying the closing costs. After completing these steps, you'll become an official homeowner!

On the closing date, you’ll meet at the title company to review lots of important paperwork. You'll need to read and sign several documents, including:

  • The final loan application
  • The deed transfer
  • Disclosures

Before signing anything, make sure you fully understand each document. It's best to ask your agent about any questions you have before the closing date.

After completing the paperwork, you'll have to pay for closing costs. The title company will collect the total amount you owe for various services and pay each party on your behalf.

Typically, a buyer's closing costs can be separated into four categories:

  • Prepaid costs: Ongoing costs of homeownership, such as property taxes and homeowners insurance. Mortgage lenders often require buyers to pay these monthly fees up front.
  • Title and escrow charges: Charges for the title company's services, such as title searches and title insurance.
  • Lender fees: Fees for the mortgage company to originate and underwrite your loan. Lender fees might include other expenses associated with your loan, such as appraisal fees or mortgage points..
  • Other closing costs: Miscellaneous costs unique to each buyer. Other closing costs can include pest inspection fees, natural disaster certification fees, and other variable expenses.

Buyers in California typically pay 3–5% of the purchase price in closing costs. For a $775,900 home — the typical home value in California — that's between $23,277 and $38,795!

» LEARN MORE: Closing costs for buyers in California

Should you hire a real estate attorney?

California does not require you to hire a real estate attorney to buy a home. However, depending on your circumstances, you might consider hiring one anyways. If you do, treat the process similarly to hiring an agent. Interview multiple attorneys and proceed with the one that best meets your needs.

Frequently asked questions

  1. Save for down payment
  2. Get pre-approved for a mortgage
  3. Choose your preferred California neighborhoods
  4. Partner with the right real estate agent in California
  5. Go house hunting
  6. Make a strong offer
  7. Inspections and appraisals
  8. Do a final walkthrough and close

Yes, California has a first-time homebuyer program that offers 30-year, fixed-rate mortgages to eligible buyers. Interest rates, purchase price limits, and income limits for the program vary by lender and county.

To qualify for this program, buyers must purchase a single-family home or an approved condominium. Borrowers are also required to complete a homebuyer counseling course.

Buyers with an FHA loan or conventional loan may choose to take part in CalHFA’s closing cost assistance program instead.

» READ: What are the top first-time homebuyer programs?

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