Buying A House In California: Facts & Tips
Lauren Nowacki10-Minute Read
December 03, 2020
The next big tech start-up. The perfect wave. A chance encounter with a celebrity or one’s own aspirations of making it on the silver screen. The Golden State is the place where vision becomes reality, no matter what type of California dreamer you are.
If you’re considering moving to California, where opportunity abounds, you’ll first want to know where to look and how to make your first dream – buying a house in California – come true.
Why Buy A House In California?
California real estate can be a great investment. According to the California Association of REALTORS® Housing Market Forecast, there is a high demand from homebuyers and home-price appreciation is expected to pick up in 2021.
Along with a great investment, California homes can be a great lifestyle improvement, with beautiful beaches, scenic mountain views and action-packed amenities. Just see what our picks for the best places to live in California have to offer.
Top 5 Real Estate Cities In California
The following places are some of the top California real estate cities on Rocket HomesSM. Whether you’re looking for a location with low crime rates, a robust job market, unique attractions or close proximity to the beach, you’ll find it in one of these cities. They may not be the cheapest places to live in California, but what they have to offer may be worth it.
- Population: 287,401
- Median Household Income: $100,969
- Median Home Sold Price: $859,941
- Average Commute: 25.6 minutes
Irvine is consistently ranked as one of the safest cities in California and has a highly ranked school district that has received the coveted, National Blue Ribbon Award 17 times since 1982. It’s known as a college town, with the University of California, Irvine – among others – calling the city home. It’s not just a good place to get an education, but a great place to get a job. The unemployment rate falls below the U.S. average, while future job growth is predicted well above the national average. The most common jobs for those in Irvine are in the manufacturing, educational and technical industries.
- Population: 1,021,795
- Median Household Income: $104,234
- Median Home Sold Price: $994,202
- Average Commute: 30.2 minutes
San Jose is the largest city within 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.
- Population: 84,534
- Median Household Income: $122,709
- Median Home Sold Price: $2,089,205
- Average Commute: 25.2 minutes
A seaside city near Irvine, Newport Beach has several beaches, piers, a peninsula and its own island. From these spots, locals can take catch a ride on a waterfront Ferris Wheel, watch the Giant Blue Whale Migration, surf the waves or traverse an inflatable waterpark in a Mediterranean-like climate. There’s also plenty of dining options in the city’s more than 400 restaurants featuring organic farm-to-table cuisine, fresh-caught, local seafood and ocean views.
- Population: 3,79,576
- Median Household Income: $58,385
- Median Home Sold Price: $768,043
- Average Commute: 31.4 minutes
A city with almost four million residents needs to have something for every lifestyle, and Los Angeles doesn’t disappoint. The sprawling city not only features all the trappings of Hollywood glamour – including movie sets, the walk of fame and the Hollywood sign – it also has access to the ocean, the desert and the mountains. And with such a high population, you get a diverse setting filled with countless cultures, languages and people from all walks of life. With such an eclectic crowd also comes diverse cuisine, which you can get any time of the day from the tens of thousands of restaurants and food trucks in the city.
- Population: 1,423,851
- Median Household Income: $75,456
- Median Home Sold Price: $633,113
- Average Commute: 24.1 minutes
As one of the sunniest cities in the U.S., with an average temperature of 72 degrees, San Diego makes it hard for residents to leave. But if they ever do want to venture out for a day or two, San Diego is only a 2-hour drive to LA, less than 6 hours from Las Vegas and Phoenix and only 30 minutes from the Mexico Border. Along with near-perfect weather and great proximity to other exciting places, 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.
Things To Know About Buying A House In California
Some California real estate laws can make the home buying process smoother than other states and help the buyer make an informed decision on what house to buy. However, some laws have their disadvantages. Make sure you understand these important factors 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.
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, thus, 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 Disclosure Reports Are Robust
A seller disclosure is a document that lists all of the known issues with the home and any past remodeling work on the home. While some states do not 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 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 located in a hazard area.
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.
Attorneys Are Not Required
Some states require a lawyer 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 may be worthwhile to hire a local attorney if you have questions that your agent cannot answer or if the transaction is more confusing or complicated than originally thought.
Presence At Closing Is Not Required
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.
Requirements For Buying A House In California
The requirements to buy a house in California with an FHA or conventional loan are pretty standard. While it’ll depend on the type of loan you get, you’ll need to have:
- A minimum credit score of 620
- A debt-to-income ratio (DTI) of about 50%
- A down payment of at least 3%, depending on the loan
You may be able to get an FHA loan with a credit score of 580; however, you’ll need to have a lower DTI.
Along with the above qualifications, you’ll also need to provide financial documentation, get an appraisal and pay closing costs.
Because California real estate is often so expensive, there’s a good chance you’ll need to purchase a home with a jumbo loan. These nonconforming loans allow you to borrow more money than FHA and conventional loans allow.
The Federal Housing Finance Agency (FHFA) sets a limit for how much someone can borrow for government-backed loans. In 2021, this limit, known as a “conforming loan limit,” is set at $548,250 for a single-family unit in most parts of the U.S.
However, because buying a house in California can be so costly, conforming loan limits are higher in some counties, including Los Angeles County and Orange County, where they reach the max loan limit for California at $822,375.
If you need to borrow more than the limit for your county, you’ll need to either pay the difference to get within the limit or get a jumbo loan. And since jumbo loans are seen as riskier loans, expect to encounter stricter loan requirements. These will depend on your lender, but may include:
- A minimum credit score of 700, 720 or 740, depending on your loan amount
- A DTI of 43%
- A down payment of at least 20%
Along with these qualifications, you’ll also need to provide financial documentation, get an appraisal and pay closing costs and fees that will be higher than with a conforming loan.
The Bottom Line On Buying A House In California
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. To ensure a smooth home buying process so you can get to all the benefits of living in California, work with a Rocket HomesSM Verified Partner Agent.
*A number of the statistics in each listing were sourced from the U.S. Census Bureau, including 2019 population estimates, 2018 median household incomes and 2014 – 2018 mean travel time to work for those 16 and older. Data from the July 2020 Rocket HomesSM Trend Report was used for the median home values for each city.
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