Are you planning to buy a home in California in 2017? If so, you have probably have a lot of questions about the California home buying process, and the different steps that are involved. You’ve come to the right place!
California Home Buying Process: 11 Steps to Success
We have created a step-by-step overview of the California home buying process. It includes some of the common steps buyers go through when purchasing a house in California. To make it easier to understand, we’ve distilled the entire home buying process into 11 steps.
The 11 steps to buying a home in California:
- Start saving money for your home-buying expenses.
- Establish your housing budget.
- Review your credit reports and scores.
- Decide which type of home loan works best for you.
- Shop for a mortgage and get pre-approved.
- Find a real estate agent.
- Start shopping for a house.
- Make an offer to buy a house / negotiate with the seller.
- Have the home inspected.
- Get home insurance.
- Close the deal and get your keys!
Note: Every home buying scenario is unique, because every buyer is unique. So your experience might differ slightly from the one outlined below.
Step 1. Start saving money for your home-buying expenses.
When buying a home in California, you will likely incur out-of-pocket expenses in the form of down payments and closing costs. These are typically paid on closing day. Your down payment might range from 3% to 20% of the purchase price, depending on the type of loan you use. If you use a VA loan, you might not have any down payment at all. You’ll also have to pay closing costs — unless the seller is willing to pay them, or you get a credit from your lender — and these can add up to thousands of dollars. So start saving now, for a more successful California home buying process.
Step 2. Establish your housing budget.
It’s wise to have a basic housing budget on paper, before you start shopping for a home. This is the amount you can comfortably afford to pay toward a mortgage each month. For starters, take a look at the amount you spend each month on your recurring expenses (excluding your current rent or mortgage payment). Subtract this total from your monthly take-home pay, and you’ll have some idea what you could spend on monthly mortgage payments. This is an important, but often overlooked, step in the California home buying process. Here’s a more in-depth look at the budgeting process.
Step 3. Review your credit reports and scores.
When you apply for a mortgage loan, the lender will review your credit reports and scores to see how you have borrowed and repaid money in the past. A higher score will improve your chances of getting approved for a loan, and could also help you secure a lower mortgage rate. Your credit score is based on the information compiled within your credit reports. So you should review both of these things before shopping for a mortgage. You can get your credit reports for free by visiting AnnualCreditReport.com (the official website).
Step 4. Decide which type of mortgage loan you want to use.
FHA. Conventional. ARM. Fixed-rate. Jumbo. You have quite a few choices when it comes to getting a home loans. Your two biggest choices are: (1) Do you want to use a fixed or adjustable-rate mortgage loan? (2) Do you want to use a conventional or government-backed loan? Here’s an article that explains the differences between fixed and adjustable loans, as well as their pros and cons. On a side note, we offer a wide variety of mortgage products, so be sure to contact us with any questions you have.
Step 5. Shop for a mortgage and get pre-approved.
Mortgage pre-approval is the next logical step in the California home buying process — unless, of course, you’re paying cash for the home. Pre-approval is when you work with a lender to determine two things: (1) whether or not you’re qualified for a loan, and (2) how much the lender is willing to give you. Once you know the amount you can borrow, you can shop for homes that fall within that range. A pre-approval letter also shows sellers that you’re serious, which is important in a competitive market. Please contact us if you’d like to get pre-approved for a loan.
Step 6. Find a real estate agent.
Is this your first time buying a home in California? Will you be purchasing in a city that’s new to you? If you answered yes to either of these questions, it would be wise to seek help from an experienced real estate agent. In most real estate transactions, it’s the seller who pays the agents’ commissions. So, as a buyer, there’s really no reason to go it alone. An experienced agent can help you navigate the latter steps of the California home buying process, especially steps 7 and 8 below.
Step 7. Start shopping for a house.
House hunting can be one of the most exciting steps when buying a home in California. But you’ll notice we have placed it more than halfway down the list, with six other steps before it. Here’s why. If you follow the process we’ve outlined here, you’ll have two important pieces of information before you start house hunting. You’ll have your own personal budget (from step #2), along with a pre-approval amount from a lender (step #5). Now you can confidently shop for homes that fall within your price range.
Step 8. Make an offer / negotiate with the seller.
When you’ve found a house that meets your needs, it’s time to make an offer. This is one of the most important steps in the home buying process, so you want to get it right. Try to base your offer on comparable sales, or “comps.” These are similar houses that have sold in the same area recently. It’s also important to consider current market conditions in the area (e.g., sellers’ market vs. buyers’ market). Remember, the seller’s asking price might be realistic, or far-fetched. You won’t know until you review the comps and study the market.
Step 9. Have the home inspected.
A home inspection is a non-invasive examination of the house that usually takes place shortly after the offer has been accepted. It’s another important step in the California home buying process. The inspection benefits you, as the buyer. It gives you a clearer picture of the property’s true condition, and helps you spot potential problems. Home inspectors examine the foundation, electrical system, heating and cooling system, plumbing and more. Inspections usually cost a few hundred dollars, which is a small price to pay for peace of mind.
Step 10. Get home insurance.
A homeowners insurance policy protects you against financial losses relating to your home. A tree branch falls onto your roof. A fire burns part of your house. A thief makes off with your electronics. A home insurance policy can protect you from these and other types of financial losses. Homeowners insurance premiums in California cost about $1,000 per year, on average. Mortgage lenders usually require the first year’s premium to be paid prior to the closing date.
Step 11. Close the deal and get your keys!
The period of time between the purchase agreement and the final settlement is commonly referred to as the escrow period. The transfer process itself is referred to as closing or settlement. The two terms are interchangeable, though “closing” is the more common term in California. It involves a lot of paperwork and the final distribution of funds. The seller gets paid, if applicable. The real estate agents receive their commissions. The lender’s fees will be paid. You’ll sign a lot of documents. And you’ll walk away with the keys to your new house!