How to Buy a House in California

Buying a house in California can be an exciting yet complex journey. With the right knowledge and preparation, you can navigate the process smoothly. Here's a comprehensive guide to help you understand the steps, requirements, and important terms you need to know when buying a home in the Golden State.

Before You Buy

Important Terms to Know

Mello-Roos Taxes: According to the California Land Title Association, a Mello-Roos District is an area where a special tax is imposed on real property owners within a Community Facilities District. The district uses this tax to finance public improvements and services, such as streets, water, sewage, drainage, electricity, schools, parks, and police protection.

Transfer Disclosure Statement (TDS): California law requires that a home seller provide the buyer with a TDS before the transfer of title. The TDS lists any known defects in the house or unique conditions the buyer should be aware of, from a leaking roof to a death on the property.

Natural Hazard Disclosure (NHD): This state-required disclosure informs the homebuyer of known hazards in the area, such as floods, fires, and seismic activity. The seller can prepare this document with the help of their real estate agent or a third party.

Real Estate Lawyer: California does not require buyers or sellers to use an attorney to facilitate a home sale. However, both parties can have their attorney present at closing if desired.

Dual Agent: In California, a real estate agent can represent both the buyer and the seller, provided that the "dual agency" is disclosed to both parties.

Requirements to Buy a House

Most homebuyers wonder, “What do I need to buy a house?” If you don’t need a mortgage and can afford to pay in cash, you only need the funds, a proof of funds letter, an earnest money deposit, and a settlement agent. If you’ll be using a mortgage, here’s what you’ll need:

Good Credit Score: Lenders typically look for a score above 650. Some lenders might accept lower scores based on the loan program and the borrower’s debt-to-income ratio.

Down Payment: Down payment requirements vary from 3.5% to 20%, depending on the loan program. Some buyers use gift funds for their down payment if allowed by the loan program.

Mortgage Lender: Mortgage loans are available from credit unions, banks, and online lenders. Start the process with the financial institution where you currently have an account, as they might offer special interest rate promotions or fee discounts.

Step-by-Step Process for Buying a House in California

1. Create a Budget: Determine how much you can save each month for a down payment, closing costs, and other home-buying expenses. Track your income and expenses to find areas where you can cut unnecessary spending.

2. Save for a Down Payment and Closing Costs: Use your budget as a guide. Consistent savings can add up significantly over time.

3. Check Your Credit Score: Knowing your credit score and reviewing your credit report for errors can help you qualify for a better mortgage interest rate.

4. Examine Your Debt-to-Income Ratio (DTI): A DTI under 36% is preferred. Calculate your DTI by dividing your monthly debt payments by your gross monthly income.

5. Research Lending Options: Explore different types of mortgage loans:

Conventional Loans: Not government-backed, available as conforming or non-conforming.

FHA Loans: Require a minimum 580 credit score, popular among first-time buyers.

VA Loans: Available to qualifying veterans, active-duty service members, and some surviving spouses.

USDA Loans: Help low-income applicants in rural areas by providing payment assistance.

Jumbo Loans: Used for high mortgage amounts, typically for luxury homes.

Adjustable-Rate Mortgages (ARM): Start with a promotional rate, then adjust periodically.

Fixed-Rate Mortgages: Have a fixed interest rate for the life of the loan.

6. Get Pre-Approved / Pre-Qualified: Provide proof of income, employment, and debt for pre-approval, which gives a fairly accurate estimate of your purchasing power. Pre-qualification provides an estimate without requiring proof of income or debt.

7. Don’t Make Large Expenditures: Avoid acquiring new debt, especially on credit cards, to maintain a favorable debt-to-income ratio.

8. Consider Working with a Real Estate Agent: An agent can help identify properties that fit your criteria and negotiate on your behalf.

9. Research Houses and Locations: Explore different areas to find the best fit for your needs.

10. View as Many Houses as Possible: The more houses you see, the easier it will be to find the right one.

11. Make an Offer: Bring your pre-approval letter when making an offer to be viewed more favorably by sellers.

12. Make an Earnest Money Deposit: This deposit shows that you are serious about the purchase.

13. Schedule a Home Appraisal: Your lender will require an appraisal to determine the market value of the home.

14. Hire a Home Inspector: An inspector will thoroughly examine the home and provide a report of findings, which can be used to negotiate the sale price or decide not to purchase.

15. Obtain Homeowners Insurance: Required by lenders, this insurance should be purchased just before closing.

16. Conduct the Walkthrough: On the morning of closing, check the house one last time to ensure it’s in the expected condition.

17. Close: Complete the closing process, which is often done virtually these days, with funds wired to the seller.

FAQ

What is Mello-Roos? Mello-Roos is a special tax in certain districts to finance public improvements and services through the sale of bonds.

Do I need a real estate attorney to buy a house in California? No, California does not require a real estate attorney for buying a house, but you can have one present at closing if desired.

What is a Dual Agent? A dual agent represents both the buyer and the seller in a transaction, with proper disclosure to both parties.

Conclusion

Ready to start your home-buying journey in California? Contact MortgageWorks today for expert advice and personalized mortgage solutions. Visit MortgageWorks or call us at 1-800-555-1234 to learn more.

This guide provides a thorough understanding of the home-buying process in California. Follow these steps and utilize available resources to make your dream of homeownership a reality.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.