Buying A House In California: Facts And Tips

The Golden State of California offers something for every kind of lifestyle, from quiet forests to bustling cities. This ideal location can also make buying a home in California an expensive ordeal, and with state-specific real estate requirements, it can be intimidating for a first-time home buyer.

If you’re serious about buying a house in California, our guide below can be a good starting point. To help you understand where to look and what to expect, we’ve created a complete walkthrough on getting a home in California which includes requirements, buyer tips and tricks, along with notable places to live.

Why Buy A House In California?

With beautiful weather, celebrity sightings and scenic views, it’s no surprise that California remains America’s most populated state. With such interest, buying a house in California isn’t just expensive, but can be competitive as well.

That’s why now may be a good time to invest in some California real estate. Although prices are still high, the California Association of REALTORS^® (CAR) saw home sales decline in all major California regions compared with 2021’s data. CAR also noted that California’s active home listings in September 2022 were the highest they’ve been in months. All this to say that the California market may be in a buyer's favor this season.

How Much Does It Cost To Buy A House In California?

The latest median home price across California is $821,680, higher than in 2021 according to the CAR. Like the rest of our country’s housing market, California has seen home prices and interest rates rise, which has led to fewer sales and even a small population decline in major regions since last year.

Although prices are high, home sales dipped by 30% in September 2022, which may further point to a California real estate market that’s putting some power in the hands of home buyers.

What Do You Need To Buy A House In California?

Like any large transaction, you’ll need the proper documentation when buying a house in California. Here are some common and important documents to be aware of:

• Real estate purchase contract: Almost every real estate transaction will have a purchase agreement This outlines all the important details and agreements between the seller and buyer, including the purchase price, closing date and contingencies. Purchase contracts can always be amended later in the process, like after an appraisal or home inspection.
• Seller and buyer agent agreements: When it comes to buying or selling a home, having a trusted real estate agent on your side can make things easier. A seller’s or buyer’s agent agreement is a contract between the home buyer or seller and their respective agent. It details the relationship, the agent’s commission and other terms.
• Loan documents: Most home buyers will use a mortgage lender to help fund their home purchase. At purchase, lenders will provide documents like the loan application, the mortgage promissory note, deed of trust, loan estimate and Closing Disclosure.
• Seller Disclosures: In California, sellers are legally required to disclose any defects or malfunctions they are aware of via a Transfer Disclosure Statement (TDS). This also includes material fact, which is any information that could influence a buyer’s decision to buy a property. A seller failing to properly disclose material fact could lead to legal action down the line, as these laws are in place to protect the home buyer.

Other Requirements To Buy A House In California

The requirements for buying a house in California with an FHA or conventional loan are pretty standard. But as such a large part of the home buying process, it’s important to know how your creditworthiness compares.

Here are the basic credit and financial requirements.

• Credit score: Federal Housing Administration (FHA) and conventional loans require a minimum credit score of 620, though this figure can vary by lender and loan terms. For example, you may be able to get a loan with a credit score of 580 if your debt-to-income ratio is low. With Rocket Mortgage^®, you can get an FHA loan with a minimum credit score of 580 with a 3.5% down payment.
• Debt-to-income ratio (DTI): Most lenders will look for a DTI no higher than 43% – 45%.
• Down payment: According to the National Association of REALTORS^®, the average down payment for a first-time home buyer is around 13%, though some types of home loans allow for a minimum down payment as low as 3% or no down payment at all.

How To Buy A House In California

Buying a house anywhere can come with setbacks, waiting periods or general confusion. Knowing what you can expect and being prepared can help you cut down on undue stress during your home buying journey.

Here are some steps to take that can make the home buying process in California as seamless as possible.

1. Determine A Location

California is the third largest state in the U.S., which can make choosing where to settle down hard. It’s important to decide what area you want to live in before beginning your home search. Try to envision your future and identify what you’ll need from day to day.

Easy access to nearby health care providers, recreational areas, gyms, schools or shopping centers can all affect your enjoyment in a new home. Set yourself up for success by finding a location near places you already love.

2. Calculate The Cost Of Living

Cost of living is just what it sounds like: It’s how much typical living expenses will cost you. This includes things like housing, groceries and transportation. According to a study by the Missouri Economic Research and Information Center, California currently has the fourth highest cost of living among all 50 U.S. states.

Understanding how far you can stretch your dollar in one place versus another is a crucial part of making a big move. Calculate the cost of living among different cities so you can make the best home buying decision for you.

3. Analyze Your Finances And Create A Budget

There can be more costs associated with buying a new home than you might think. Some of the costs to be mindful of include:

• Down payment: Usually 3% – 20% depending on your loan type
• Closing costs: Closing costs can range between 3% – 6% of your home’s purchase price, though in some cases, sellers may help chip in.
• Homeowners insurance: While the state of California doesn’t legally require homeowners insurance, most lenders do. The average cost for homeowners insurance in California is around $1,000 – $2,000 per year.
• Mortgage payments: There can be three components to your monthly mortgage payments, not including your escrow payment for taxes and insurance. These are payments toward your principal balance, interest and, in some cases, mortgage insurance. Our mortgage amortization calculator can help you gain clarity on just how much you could be looking at each month.

Remember, all these costs don’t include factors like moving costs, furniture, utilities and other expenses. Creating a budget and knowing how much you can afford is key to successful homeownership anywhere – not just in the Golden State.

4. Choose A Mortgage

Not only will you need to choose which lender you want to work with, but you should also decide what kind of mortgage you want to use. Here are some of the most common types of mortgages:

• Conventional loans: Conventional loans have a higher credit requirement of 620, but can have a down payment requirement as low as 3%.
• FHA loans: Popular among first-time home buyers, FHA loans only require a 3.5% down payment while also providing more flexible credit score requirements than conventional loans. That’s because they are insured by the government.
• VA loans: VA loans are a government-backed loan provided through the Department of Veterans Affairs (VA) available to active or former military home buyers and eligible spouses. It has no down payment requirement and flexible lending requirements.
• USDA loans: USDA loans are also government-backed loans through the U.S. Department of Agriculture (USDA), and available to borrowers in eligible rural areas with no down payment requirement. The USDA’s property eligibility map excludes most of California’s major cities, like Bakersfield, Los Angeles, San Jose, San Francisco and Fresno.

5. Start The Initial Process

Getting preapproved for a mortgage is an important first step to take on your home buying journey. It shows that you’re likely to secure financing for a loan and are a serious buyer – important in any real estate market.

6. Get A Real Estate Agent

Working with a real estate agent or REALTOR^® local to the area you're interested in is crucial. Not only can they provide insight on specific neighborhoods or find homes which meet your needs, but having an agent by your side can help streamline the overall buying process.

Working with an expert cuts down on confusion around paperwork, where to look for homes and may even save you some money during negotiations.

7. Find A House

Like we said, working with an agent is a great way to cut down time on house hunting. But you should still know what you want. It can be helpful to make a list of must-haves and nice-to-haves to ensure you find your dream home.

8. Inspections And Appraisals

Having home appraisals and inspections done can give you greater insight into the condition of the home you’re buying. California’s Seller Disclosure laws should protect you from any major disruptions, but knowing the condition of a home’s systems may help you save some money during negotiations.

Most inspectors will evaluate the following:

• Roof
• Home’s foundation
• HVAC system
• Plumbing
• Electrical system

9. Make An Offer

Work with your real estate agent to make an offer the seller may accept. No matter what kind of market it is, you’ll want to strategize what contingencies to include or if you should offer earnest money. Once the seller has received your offer, they can accept or reject it, negotiate, or request that some changes be made.

10. Close On A House

In California, the closing process is simple. Just sign the proper paperwork, take care of closing costs and you’re officially a new California homeowner.

What To Know Before Buying A Home In California

Some California real estate laws can make the home buying process smoother than in other states. They can also help home buyers make more informed decisions on what house to buy, which is especially helpful if you’re a first-time home buyer.

However, some laws also come with their disadvantages. Here are the important factors to understand when buying a home in California.

Dual Agency Is Permitted

Dual agency means that buyers and sellers can be represented by the same agent, which is not allowed in many other states. For an agent to act as a dual agent in California, they must have consent from both the buyer and the seller in writing.

While working with a dual agent could streamline the process, help you avoid communication issues and possibly save you money on commission, the agent may find it difficult to act in the best interest of both parties, which could negatively affect you, the buyer.

You May Have To Pay Mello-Roos Taxes

California has special districts known as Mello-Roos Community Facilities Districts. They’re set up by local governments in response to Proposition 13, which limits property taxes and the local government’s ability to finance certain projects and services.

As a workaround to the proposition, the Mello-Roos tax assesses the property’s land, not the value of the property, as property taxes do. The amount charged is different for each district and each home.

This tax helps fund local infrastructure, parks and educational facilities along with services like fire, police and medical emergency response. It is only paid by homeowners within that district.

Real estate agents must disclose that a home is in a Mello-Roos Community Facilities District. If you’re considering moving into one of these districts, consider the extra tax burden it may have on your household and the negative impact it could have on your future home sale.

Seller’s Disclosure Reports Are Robust

A Seller’s Disclosure report is a document that lists all the known issues with the home and any past remodeling work on the home. While some states don’t have many disclosure laws, California is highly regulated in this important part of the home buying and selling process.

In California, home sellers are required to submit lengthy disclosures on physical condition, natural hazards and environmental concerns. Considering California is located on earthquake fault lines and routinely experiences earthquakes, wildfires and flooding, these disclosures are vital.

Sellers are only required to list issues they know about. These may include:

• Roof and foundation issues
• Electrical, water or HVAC problems
• Natural hazards
• Lead, asbestos, radon or mold present in the home
• Legal issues concerning the property
• Death occurring on the property

Your real estate agent must also disclose any information they have on the home. By California law, the seller or real estate agent must also complete a Natural Hazard Disclosure (NHD) report, which determines whether the property is in a hazard area, wherein you may want to consider purchasing hazard insurance.

You can also find more information on the home with a Comprehensive Loss Underwriting Exchange (CLUE) report, which provides past insurance claims for the property. You can only obtain a CLUE report with the seller’s permission.

It’s important as a buyer to investigate and do your due diligence before making an offer on a house. In addition to reviewing the Seller’s Disclosure, try to attend open houses, research the neighborhood and get a home inspection and appraisal to ensure the home is worth pursuing.

Attorneys Are Not Required

Some states require a real estate attorney to represent both the seller and the buyer at closing, but California does not. While this can save you money and may speed up the process, it could still be worthwhile to hire a local closing attorney or escrow agent. This is especially true if you have questions that your agent cannot answer, if you’re a first-time home buyer or if the transaction is more confusing or complicated than originally thought.

Presence At Closing Is Not Required

California may not be the cheapest state to buy a house, but it is one of the easiest to close in. California law allows buyers and sellers to be represented by real estate brokers and agents at the closing table. This can be an advantage to both buyers and sellers since they won’t need to worry about scheduling conflicts holding up the actual closing.

Top 5 Real Estate Cities In California 

The following are our picks for California’s best places to live, selected for their locations, robust job markets, unique amenities or attractions and coastal views.

Take a look below and see if you can find your potential new hometown.

Irvine

• Population: 309,031
• Median household income: $108,318
• Median home price: $861,700
• Median monthly rent: $2,425

Irvine is consistently ranked as one of the safest cities in California, with a highly ranked school district that has received the coveted National Blue Ribbon Award 19 times since 1982. Known as a college town, with the University of California, Irvine – among other colleges – calling the city home.

This SoCal city isn’t just a great place for education, but for potential jobs, too. The unemployment rate is 0.6% lower than the national unemployment rate, thanks in part to Irvine’s thriving manufacturing, educational and technical industries.

Explore homes for sale in Irvine today or check out our Irvine real estate trends for more information.

San Jose

• Population: 983,489
• Median household income: $117,324
• Median home price: $925,800
• Median monthly rent: $2,232

San Jose is the largest city in Silicon Valley, the epicenter of technology and innovation. Due to its proximity, many residents work in the tech industry, one of the biggest influences in San Jose’s fast-growing economy. But the city isn’t just a tech hub. San Jose also features an eclectic dining scene and is home to the Winchester Mystery House, one of the most famous haunted houses in America.

Explore homes for sale in San Jose today or check out our San Jose real estate trends for more information. 

Newport Beach

• Population: 84,792
• Median household income: $133,849
• Median home price: $1,976,400 
• Median monthly rent: $2,409 

A seaside city near Irvine, Newport Beach has several beaches, piers, a peninsula and even its own island. Locals can catch a ride on the waterfront Ferris wheel, watch the annual blue whale migration, surf the waves or check out the Newport Dunes Inflatable Water Park in a Mediterranean-like climate. With more than 400 restaurants, there are plenty of dining options ranging from farm-to-table cuisine to fresh-caught local seafood.

Explore homes for sale in Newport Beach today or check out our Newport Beach real estate trends for more information.

Los Angeles 

• Population: 3,849,297
• Median household income: $65,290 
• Median home price: $670,700
• Median monthly rent: $1,523

With nearly four million residents, Los Angeles has something for every lifestyle. From all the trappings of Hollywood glamor – movie sets, the Walk of Fame and the Hollywood sign – to beachfront access and mountains perfect for hikes and sightseeing.

With so many residents and a steady stream of tourists, it’s no surprise that the City of Angels is exceptionally diverse with different cultures and lovely people in Chinatown, Little Tokyo, Little Armenia and Koreatown among others. Los Angeles cuisine is boundless for foodies, with tens of thousands of restaurants and food trucks scattered across the city.

Explore homes for sale in Los Angeles today or check out our Los Angeles real estate trends for more information.

San Diego 

• Population: 1,381,611
• Median household income: $83,454 
• Median home price: $629,500 
• Median monthly rent: $1,770

As one of the sunniest cities in the U.S. and an average temperature of 72 degrees, San Diego has near-perfect weather and plenty to offer. San Diego is a craft beer haven and hot spot for foodies. Animal lovers can encounter wildlife at the famous San Diego Zoo and come within mere feet of wild sea lions sunbathing in La Jolla Cove.

Explore homes for sale in San Diego today or check out our San Diego real estate trends for more information.

FAQs About Buying A House In California

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

As mentioned above, the average down payment for a house in California is 13%. Your required down payment can vary, though, depending on your lender and loan type. If you’re approved for a conventional loan, you’ll owe a minimum down payment of 3% of the purchase price, or 3.5% for an FHA loan. If approved for a VA or USDA loan, you may not owe any down payment.

What credit score is needed to buy a house in California?

Again, your credit requirements will depend primarily on your loan and lender. Conventional loans typically require a minimum score of 620, and FHA and VA loans can be approved for as low as 500. USDA loan lenders typically require a higher score of 640.

What programs are there for first-time home buyers in California?

The California Housing Finance Agency offers a number of first-time home buyer programs, including government and conventional programs, as well as the MyHome Down Payment Assistance Program and ADU Grant Program. CalVet offers home loans for qualifying veterans.

You can also find California homeownership assistance through Habitat for Humanity and the U.S. Department of Housing and Urban Development (HUD).

The Bottom Line

A home in California can come with sweeping views of the mountains and ocean, unique places to eat and visit, and near-perfect weather. It may also come with higher home values, special taxes and unique laws. If you consider all of the state’s real estate factors and create a home buying plan, though, your California home purchase should go swimmingly.

To ensure a smooth home buying process and get you on your way to your California dreams, start the approval process for your mortgage today.

Methodology

The data used to create this article was sourced from multiple sites and sources. The most recent data by the U.S. Census Bureau was used to find the populations, median household income, median home prices and median monthly rent for each city. Each city’s average commute time was sourced from BestPlaces.net.