Checklist for Getting Ready to Buy Real Estate in California
Make buying a California home as straightforward as possible. Follow these eight steps to find the right home and get a great deal.
Step 1: Evaluate your financial situation
When you're looking to take out a mortgage to pay for your house, you'll need to consider how your buying options affect your financial situation.
We'll go into more depth below, but here are the financial considerations that you need to have before you buy a house:
Key Takeaways: Financial Requirements
- Credit score: Although low-credit loans exist, for most traditional loans, you'll need a score of at least 620. If your credit score is below that, start research now to boost your credit score.
- Debt-to-income ratio: You'll want to spend less than 36 percent of your income on debt per month (including your potential mortgage payment).
- Down payment: On a traditional loan, you would need at least 20 percent down payment.
- Closing costs: Home sellers usually have to pay in closing costs 2-5 percent of the house price. In California the average home value is $579,422, which amounts to $11,588-28,971. Usually these costs have to be paid out of the pocket so make sure you've got savings to cover them.
- Homeownership costs: Across California, homeowners usually spend $2,802 annually on maintenance costs, although this can vary greatly depending on the building. In general, for repairs, you can save 1 percent of the value of the house per year.
Step 2: Choose the right neighborhood
The neighborhood of a house is as important as the layout and features thereof. In general, you will need to weigh the factors below to determine which area is best for you:
Key Takeaways: Neighborhood factors
- Home values: Looking at a neighborhood's average home values helps you see if you can afford to live in it. Historical trends in real estate appreciation will also show you if future purchases in the area will pay off.
- Local lifestyle: A neighborhood can have an impact on everything from your daily commute to your children's school where you go out to eat.
By Oleg. - https://www.flickr.com/photos/olegshpyrko/15400283837/, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=101352444
Step 3: Find a great real estate agent in California
During the home buying cycle, the real estate agent will be the principal ally. In addition to locating and showing you homes, they will also make suggestions for other facilities, such as attorneys, lenders and escrow firms. So if you rent a house it's your realtor who's going to make sure you get a lot.
Take the time to study numerous agents who are experienced in your desired part of the city and selection of prices. Pay attention to realtors':
- Years of experience
- Number of transactions in the last year (the more the better)
- Experience in your price range and chosen neighborhood
- Overall review score
- Individual reviews and complaints
Step 4: Get pre-approved for a mortgage
Most sellers won't show you their home unless you get a letter of pre-approval for your mortgage. They don't want to waste their time with customers who aren't financially or seriously willing to put in an bid.
Getting pre-approved for a mortgage gives you and the lender confidence that you will be able to get funding and close the deal if they consider your bid.
Step 5: Start house hunting in California
Looking at the homes is the best part of buying a house! Yet don't forget, you will finally need to make the big decision on which one is right for you.
Here are some of the key factors to remember when viewing different homes:
Key Takeaways: House hunting tips
- "Must haves" vs. "nice to haves": It is no perfect home. You'll have to determine which of your goals are non-negotiable, and which are only nice rewards, when you see homes.
- Understand current housing inventory: You may have fewer choices to choose from depending on the time of year you are searching for a house. When the market includes fewer homes, you may need to change your expectations.
Step 6: Make offers
It's time to make an offer once you find a house you love, and convince the seller to sell to you. But if you don't know when to make a bid or how to make it more appealing it may not be accepted by the seller.
Key Takeaways: Making offers
- Move fast: Know how quickly homes go off the market, so that you don't wait too long to make an bid. Homes in California are currently on the market averaging 48.5 days before they receive an bid. If you've listed your dream house about that long, you shouldn't wait to submit an offer.
- Know how to sweeten the deal: A higher price often isn't the best choice for getting a seller to consider your bid. You should write to build a contract that works for you and the seller in different asks — like no contingencies.
Step 7: Inspections and appraisals
When a seller accepts your bid, there are a number of due diligence measures to ensure that what you have signed up for is the home you are purchasing. After reviews and appraisals, if anything unforeseen comes up, you'll have an opportunity to return to the negotiating table.
Key Takeaways: Inspections vs. Appraisals
- Inspections: A licensed specialist inspects the house for any known, unexpected or possible issues.
- Appraisals: An appraiser the lender hires can evaluate the house and decide how much it's worth.
Step 8: Final walkthrough and closing!
When it's time to close, you'll be able to do a final walkthrough of the property to make sure it's still in the condition expected. Although you might be happy to be done with the purchasing cycle, stay focused so that nothing is missing.