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Buying A House In California: Facts And Tips

Miranda Crace12-Minute Read
September 22, 2022

The next big tech start-up. Catching the perfect wave. Chance encounters with your favorite celebrity. Trying to make it on the silver screen. Whatever you hope your future holds, California is the perfect place to make your visions a reality.

If you’re serious about pursuing your California dream, buying a house in California is a good starting point. To help you understand where to look and what to expect, we’ve created this guide to get you steps closer to your goals. 

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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: Most every real estate transaction will have a purchase contract involved. 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 note, deed of trust / mortgage, 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. 

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 competitive. 

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 a year ago. CAR also noted that California’s active home listings in April 2022 were the highest they’ve been in seven months. All this to say that the California market may be in buyers’ favor this season. 

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

The latest median home price across California is $884,890, a record high 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 7.4% in April which may further point to a California real estate market that’s putting some power in the hands of home buyers. 

Top 5 Real Estate Cities In California 

The following are our picks for California’s top real estate cities, selected for their locations, robust job markets, unique amenities or attractions, and of course, coastal views. While these may not be the cheapest places to live in California, what they offer residents may be well worth it. 

Irvine 

Aerial view of Irvine, California.
  • Population: 309,031
  • Median household income: $108,318
  • Median home price: $861,700
  • Median monthly rent: $2,425
  • Average commute: 1 minutes

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 others –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 and Irvine has 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 

Aerial view of San Jose.
  • Population: 983,489
  • Median household income: $117,324
  • Median home price: $925,800
  • Median monthly rent: $2,232
  • Average commute: 4 minutes 

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

Aerial view of Newport Beach.
  • Population: 84,792
  • Median household income: $133,849
  • Median home price: $1,976,400 
  • Median monthly rent: $2,409 
  • Average commute: 25 minutes

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 some gnarly waves or traverse 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 

Palm trees in front of Los Angelos cityscape.
  • Population: 3,849,297
  • Median household income: $65,290 
  • Median home price: $670,700
  • Median monthly rent: $1,523
  • Average commute: 9 minutes

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. And with Chinatown, Little Tokyo, Little Armenia and Koreatown, the LA cuisine is boundless. Foodies will love exploring the 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 

San Diego cityscape.
  • Population: 1,381,611
  • Median household income: $83,454 
  • Median home price: $629,500 
  • Median monthly rent: $1,770
  • Average commute: 24 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 just a 2-hour drive to LA, less than 6 hours to Las Vegas and Phoenix, and only 30 minutes from the Mexico border.

 

Besides 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.

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

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Important Things 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.

You May Have To Pay Mello-Roo 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’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 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 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.

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 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 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.

Requirements For Buying 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 what they are. Here’s everything you should know:

  • Credit score: 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 DTI 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 45% - 50%. 
  • Down payment: According to the National Association of REALTORS®, the average down payment for a first-time home buyer is between 6% and 7%, though some loan types 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 Californian home buying process as seamless as possible. 

Step 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. 

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

Step 2: Calculate The Cost Of Living 

Cost of living is just what it sounds like: 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. Check out our cost of living calculator to compare the cost of living among different cities, so you can make the best home buying decision for you. 

Step 3: Analyze Your Finances And Create A Budget 

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

  • Down payment: Usually 3% – 20% depending on your loan type
  • Closing costs: Closing costs can range between 3% and 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 - $1,500 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 calculator can help you gain clarity on just how much you could be looking at each month. 

Remember, all these costs don’t include things 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 the Golden State. 

Step 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: These loans have a higher credit requirement of 620, but can have a down payment requirement as low as 3%. 
  • FHA: 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: VA loans are a government-backed loan available to active or former military home buyers and eligible spouses. It has no down payment requirement and flexible lending requirements. 
  • USDA: This government-backed loan is available to borrowers in eligible rural areas and also has no down payment requirement. The USDA’s property eligibility map excludes most of California’s major cities, like Bakersfield, LA, San Jose, San Francisco and Fresno. 

Step 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 – something that’s important in any real estate market. 

Step 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. 

Step 7: Find A House 

Like we said, working with an agent is a great way to cut down on time 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. 

Step 8: Inspections And Appraisals

Having appraisals and inspections 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

Step 9: Make An Offer 

Work with your real estate agent to craft the perfect offer letter. 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. 

Step 10: Close On A House 

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

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. To ensure a smooth home buying process and get you on your way to your California dreams, find an agent 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

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Miranda Crace

The Rocket Homes blog is here to bring you all you need to know about buying, selling and making the most of your home. Whether you’re thinking about becoming a homeowner, selling your current home or looking to keep your place in tip-top shape, our writers and freelancers bring their experience and expertise to meet you right where you are.