6 Simple Steps to Buy a House in California—And Get What You Want

Today, we’re looking at how to buy a house in California.

While the entire United States housing market is skyrocketing, few locations are skyrocketing as fast as California. If you’re a home buyer in California—especially Southern California—can you get the home you want?

It’s still possible. You must get your finances in order, prioritize your needs, and make a competitive offer.

If you’re looking at how to buy a house in California, follow these six simple steps. Regardless of the hot real estate market, you’ll get the perfect property for your needs and the best deal possible.

If you’re looking at how to buy a house in California, follow these six simple steps. Regardless of the hot real estate market, you’ll get the perfect property for your needs and the best deal possible.

A Brief Overview of the California Housing Market

Before diving headfirst into buying a house, let’s take a quick look at the current state of the California real estate market. Prices from San Diego to Los Angeles County are going up incredibly fast.

According to the latest data from Zillow, the average home value in California is $800,172. This is a 21.2% increase over last year, and experts expect values to continue to rise—albeit slower.

California Housing Market - How to Buy a House in California

A 21.2% increase in real estate is virtually unheard of, but that doesn’t mean it’s a bubble. Low inventory drives it primarily; there aren’t enough homes for every California home buyer.

Inventory levels are tight throughout the state, especially in the Bay Area and San Francisco. In some areas, there’s less than a month of supply of homes on the market. Believe it or not, that’s still higher than in recent months.

And while interest rates are still at historically low levels, they have recently increased, dramatically increasing real estate’s practical cost (monthly payments). The average 30-year fixed mortgage rate is 5.83%, up two points from the beginning of this year.

To buy a home in California, you must be realistic about what you want and can get. You may not get your “dream home” today, but you can get a reasonable starter home to parlay into a dream home later.

The Best Cities in California to Buy a Home

California’s real estate differs tremendously based on location. While you’ll always face high property taxes, some areas are more affordable than others.

If you’re looking for a tight housing market with high prices, San Francisco is the place for you. The average home value is $1,649,000, and the average rent is $4,510 (for a two-bedroom). With 20% down, a mortgage on a $1,649,000 home would be over $7,000—so it’s one of the few places where it may make more sense to rent than to buy.

Now, look to Fresno; the average price is $374,000—much more approachable. In Sacramento, the average price is $517,612—more than $300k, but not 1.6 million dollars.

A home buyer needs to ask themselves the following questions: Do you need a house in a specific area of California? Or can you commute from a city or suburb with more reasonable costs?

1. Get Your Finances in Order

Before you do anything else, you must get your finances in order. This means looking hard at your credit score, saving for a down payment, and paying off your debts. You don’t want to find a new home only to discover that you can’t qualify for it.

Your credit score is one of the most important factors in determining whether or not you’ll be approved for a loan—and what interest rate you’ll get. If you don’t know your credit score, get a free credit report from one of the three major credit bureaus. Correct any mistakes and pay off the debts you can.

For a conventional loan, you’ll need a credit score of at least 620. But the higher, the better. If your score is below that, you may still be able to get approved for an FHA loan with a 3.5% down payment.

Saving for a down payment is perhaps the most difficult part of buying a house, especially for first-time buyers. The average down payment in California is 14.8%, or $118,415 (on an $800,172 home). But you don’t always need to pay that much. An FHA loan is 3.5%, a VA loan is 0%, and a USDA loan is 0%.

2. Get Pre-Approved for a Mortgage

The next step in the home-buying process is to get pre-approved for a mortgage. This will give you a good idea of how much money you’ll be able to borrow and help you narrow your search by home price.

Getting pre-approved is a pretty easy process. You can do it online in a matter of minutes. You only need to provide basic information about your finances and employment situation.

But in California, you need to “sweeten the pot.” And that usually means getting prequalified at a minimum-prequalification is a more rigorous process that involves additional documentation and underwriting.

Today, some services provide “guaranteed” close loans-loans that have already been underwritten, are guaranteed to close, and are essentially as good as cash. Other services in California provide cash offers by a third party; they buy the cash home and then sell it to you afterward.

3. Find a Real Estate Agent

Once you’ve researched and know what you’re looking for, it’s time to find a real estate agent. A good agent will help you find the right property, negotiate a great deal, and provide moral support throughout your search.

Give your agent a list of “wants” and “needs.” Wants are the things that would be nice to have. Needs are the things that you must have and won’t compromise on. But always be flexible.

Consider. There is a $500,000 home, but it doesn’t have a patio. There’s a $600,000 home, but it does have a patio.

Would it cost you $100,000 to put in a patio? Probably not.

So, even your needs are guidelines insofar as any home that you buy can be improved on in the future. Plan for this. In such a hot, competitive market, it’s possible that you will get what you want… but not immediately.

4. Start Looking at Listings

Your real estate agent will start sending you listings, arranging showings, and bringing you to open houses. While you can do some research on your own, California’s real estate market moves very quickly by. When you see a listing on a portal like Trulia or Zillow, it’s probably already received an offer or two.

You may realize things about your house search as you look at listings. Maybe you’re more willing to move farther away for a bigger home than you thought. Maybe there are certain things you hate that you can’t compromise on.

Don’t panic. It’s an intense process. Many homebuyers in California have to put in offers on several homes before they get an offer accepted. Take your time, carefully review each listing, and imagine yourself in the home. If it’s not your perfect house, could you turn it into one over time?

5. Make an Offer

Once you’ve found the perfect property (or property that could someday be perfect), it’s time to make an offer. You already have your preapproval or prequalification, so you know how much you can spend.

There are ways to make your offer more appealing in the hot California market, but they come with some major caveats.

Offer more in earnest money.

This is the deposit you put down when you offer to show you’re serious. It’s typically 1% of the purchase price. So, on a $600,000 home, your earnest money would be $6,000.But in California, where homes are selling way above the asking price and multiple offers on most listings, you may want to put down more money—5% or even 10%.

This is a big risk because if your offer falls through for any reason, you could lose that money. But if you get the house, the earnest money will go toward your down payment.

Waive your inspection contingency.

This contingency allows you to back out of an offer (or renegotiate) if the home is not inspected. So, if the inspector finds mold, significant water damage, or any other issue, you’re not obligated to buy the home.

In a hot market, waiving this contingency can make your offer more attractive because it’s less risky for the seller. But you’re risking a lot if you’re getting an FHA loan or a VA loan. Your loan probably won’t fund if the house doesn’t pass inspection, and you may end up with a more expensive conventional loan.

Waive your appraisal contingency.

This contingency protects you if the home’s appraised value is lower than the purchase price. So, if you’re buying a home for $600,000 and it only appraises for $550,000, you can back out of the deal or renegotiate.

However, sellers often won’t accept an offer with an appraisal contingency in a hot market because they’re worried the deal will fall through if the appraisal comes in low.

This is another huge risk because if the appraised value is lower than the purchase price and you can’t renegotiate, you could be stuck paying for a home worth less than what you owe.

Offer more than asking.

In a seller’s market, it’s not uncommon for buyers to offer more than the asking price. The seller usually chooses the highest one if multiple offers are on a listing.

For example, if a home is listed for $600,000 and you offer $610,000, your offer is more likely to be accepted than someone who offers $600,000. But you could end up overpaying for the property. Or your financing could fall through if the appraisal is very short. Talk to your agent first before making a huge offer.

Make a cash offer.

If you have the cash to pay for the property. You could make a cash offer, which is often more attractive to sellers because it means there’s no risk of the deal falling through because of financing. Alternatively, you could go with one of the many new services promising to make cash offers for home buyers… for a fee.

6. Close on Your Home

The final step in buying a house in California is to close on your home. This is when the sale is finalized, and you’ll be officially the property’s new owner. Sound simple? Believe it or not, this is the slowest part of the process, apart from looking for a home.

To close on your property, you will need to:

  • Put down your earnest money.
  • Go through the underwriting process (including verifying your income and employment).
  • Complete your home inspection (if not waived).
  • Complete your appraisal (if not waived).
  • Complete a title search.
  • Wire your down payment and closing costs.
  • Get your mortgage closed and funded.

There are things that can go wrong during this process. The title search can reveal liens that weren’t disclosed. Your mortgage rate could go up (always lock it!). Your financing could fall through altogether.

For the most part, you can usually extend the closing process to fix any issues. But be aware that the California market is so hot that some sellers may get scared and pull out at the slightest inconvenience.

After all that (30 to 45 days of processing time), you’ll get the keys to your home, and it will finally be your own.

Conclusion: How to Buy a House in California-And Get What You Need

Look: I won’t tell you that buying a house in California isn’t stressful or difficult. But if you’re trying, you already know that California is where you want to be.

I will tell you that it’s possible to get most of what you want—you must prioritize.

FAQs

How much money do you need to buy a house in California?

If you’re putting 3.5% down on an $800,000 house, you will need at least $28,000. You will also need enough money for closing costs, which could be anywhere from 3% to 5% of the purchase price.

Is it worth buying a house in California?

Absolutely. Over the last five years, the average house value in California has gone from $500,000 to $800,000. Ten years ago, it was $300,000. While buying a house in California may be expensive, it’s an investment.

How much does a California house cost?

On average, Californian houses cost $800,000. But that average includes many multi-million-dollar homes in some desirable areas. You can still find a house for less; you must be selective about the area.

How hard is it to buy a house in California?

It’s difficult. The California housing market is one of the most competitive markets. Buyers are buying houses at over asking, waiving requirements, and bidding on multiple houses to secure a deal.

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