15 Steps to Buying a House in California

With 39 million people who call it home, California is the most populous state in the U.S. and ranks third in total area behind Alaska and Texas. With this in mind, buying a house in California can be overwhelming. With so many people and rising home prices, it can be downright intimidating.

But, it doesn’t have to be! We’re here to walk you through the steps of buying a home in California. With the help of Daniel Del Real, a top agent in Modesto, California who works with 75% more single-family homes than the average Modesto agent, we’ll give you the information you need to succeed as a California homebuyer.

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1. Assess your financial situation and future goals

We can’t always predict what the future holds — let’s be honest, we probably didn’t see ourselves locked down because of a pandemic or foresee the crazy real estate market that followed.

Median home sale prices in California increased by 5.4% from June 2021 to June 2022, according to data from the California Association of Realtors®. Median home prices in June 2022, however, are down 4% from May 2022, a sign of some market cooling. If you are looking to enter the market after some of the fiercest competition California has seen in its real estate market, now just might be a great time.

To get started on evaluating your financial situation, take a look at your credit score and determine where you land on the scale between poor and excellent. Typically, the better the score, the greater your chances are of qualifying for an affordable mortgage. If you find that your score could use some improvement, consider disputing any errors on your credit report, paying down some of your debt, or settling any accounts that are in collections.

Del Real says it’s important to understand the reason you’re buying a home — to gain needed space, as an investment, with future needs in mind — and to “make sure you buy within your means,” but “if the right property comes along and it’s the one that you really want and it’s the neighborhood that you need within your price point, then you go for it!”

2. Determine how much you can afford

Living in California isn’t cheap, but you probably already know that. Determining how much you can afford in California isn’t as easy as it is in some other states due to special considerations such as additional homeowners insurance and Mello-Roos facilities districts. However, there are also down payment assistance and first-time homebuyer programs available to California buyers that can help make homeownership a reality.

A great place to start is with an affordability calculator, like this one from HomeLight. You can enter details such as your income, credit score, zip code, and down payment amount to get an estimate of what you might be able to afford.

3. Research special programs for down payment assistance

There are organizations in California that offer down payment assistance and first-time homebuyer programs to help make the dream of owning a home a reality. These are often loans in the form of a second mortgage with their own interest rates and payback requirements. Some programs available to low-to-moderate income homebuyers and first-time homebuyers include:

• Golden State Finance Authority (GSFA)
  • GSFA Platinum® Down Payment Assistance Program – Down payment and closing cost assistance up to 5.0% of the mortgage loan amount.
  • GSFA OpenDoors® Down Payment Assistance Program – Down payment and/or closing cost assistance up to 7% of mortgage loan amount.
• CalHFA
  • Forgivable Equity Builder Loan – Gives first-time homebuyers immediate equity of up to 10% of the purchase price of the home in the form of a loan. If the homebuyer occupies the home as a primary residence continuously for five years, the loan is forgivable.
  • MyHome Assistance Program – There is a program for government loans and for conventional loans that offer deferred-payment junior loans for 3.5% and 3% respectively to help with the down payment and closing costs.
• City-specific options
  • To find out if your specific city has affordable housing options or programs, you can contact your city directly.

Please note that these programs are subject to change and you will need to contact these entities directly for more information and to determine if you might qualify. Not all lenders offer these programs, and in some cases, a lender will need to be specifically approved to offer them.

4. Shop for a mortgage and get preapproved

When you start your homebuying process in California, you will want to apply for mortgage preapproval to get a good idea of how much you are qualified to borrow. Not only is it important to shop for lenders to see different terms and rates, but it’s also important to shop for different types of mortgages to see which one works best for you and your unique situation. Here are some loan options that might be available to you:

Conventional loan

There are two types of conventional loans — conforming and non-conforming. A conforming conventional loan will meet or exceed the guidelines set by Fannie Mae and Freddie Mac which are government-sponsored enterprises (GSEs) that purchase conventional loans. Guidelines for a non-conforming loan will vary more widely depending on the lender.

Typical requirements for a conventional loan may include:

• Minimum credit score of at least 620
• Maximum debt-to-income (DTI) ratio of 43%
• Minimum down payment of 5%, though some programs allow for a 3% down payment
• Maximum loan amount of $647,200 in most counties; $970,800 in high-cost counties
• Typically requires private mortgage insurance (PMI) if the down payment is less than 20%

Jumbo loans

A jumbo loan is used when the borrowed amount exceeds the $647,200 or $970,800 limit depending on the county the home is located in. The loan limits can change each year and vary by county. These loans are fairly common in parts of California due to high home prices.

For example, the conforming loan limit in Los Angeles, Marin, Orange, San Benito, and San Francisco counties is $970,800. Riverside, Imperial, Fresno, and San Joaquin counties have a loan limit of $647,200.

Loan amounts above these limits will require a jumbo loan and the requirements to obtain one differ from conventional loan requirements and may include higher credit scores and lower debt ratios, some guidelines you may encounter are:

• Minimum credit score of 700, but sometimes above 720
• Low DTI, preferably 36%
• A 20% down payment

FHA

An FHA loan is insured by the Federal Housing Administration and available from FHA-approved lenders. An FHA loan is unique in that borrowers are able to use a down payment assistance program for the entire down payment. Requirements to qualify for an FHA loan may include:

• Minimum credit score dependent on down payment amount:
• 580 = 3.5% down payment
• 500-579 = 10% down payment
• An upfront mortgage insurance premium
• Mortgage insurance premium (MIP) paid monthly for the life of the loan
• DTI of 43% or lower
• Must be borrower’s primary residence

VA

VA loans are available to current service members and veterans who meet eligibility requirements. There are two types of VA loans — a VA direct home loan (uncommon) and a VA-backed home loan. VA loan requirements include:

• Minimum service requirements
• No minimum credit score (but the lender itself might have a minimum)
• No down payment required in most circumstances
• Some will have to pay a VA funding fee

CalHFA

The California Housing Finance Agency (CalHFA) has approved lenders that can qualify first-time homebuyers for a variety of home loans. Loans are approved based on:

• Credit, income limits, and other loan requirements from the CalHFA lender
• The home must be the borrower’s primary residence
• Completion of homebuyer education counseling

Once you’ve completed your mortgage application — which might only take you as long as it takes to gather all of the documentation that’s needed to verify income, debt, and assets — you can be preapproved for a mortgage in as little as one business day.

At this stage, you should get preapproved rather than prequalified. Prequalification only takes a few minutes, and it’s just a ballpark of what you could qualify for. Underwritten preapproval requires the lender to closely review your documentation to see how much you could qualify for. Keep in mind, even with underwritten preapproval, you could still be denied a loan later in the process if your financial situation changes.

5. Research the market

When you’re looking into the California market and areas to live, there are a few things to take into consideration: Median home price, median days on market, geographic features, schools,  and potential hazards like earthquake and wildfire risk. Let’s take a closer look at the different areas California has to offer and their median home price and days on market as of June 2022, with data provided by the California Association of Realtors:

Southern California

Median sold price of existing single-family homes: $830,000

Median days on market: 10

Counties include: Riverside, San Bernardino, Los Angeles, Orange, San Diego, Ventura

Central Coast

Median sold price of existing single-family homes: $980,000

Median days on market: 10

Counties include: Monterey, San Luis Obispo, Santa Barbara, Santa Cruz

Central Valley

Median sold price of existing single-family homes: $497,000

Median days on market: 8

Counties include: Merced, Sacramento, San Joaquin, Placer, San Benito, Stanislaus, Kings, Madera, Fresno, Kern, Glenn, Tulare

Bay Area

Median sold price of existing single-family homes: $1,400,000

Median days on market: 12

Counties include: Alameda, Contra Costa, Napa, San Mateo, Solano, Sonoma, Marin, San Francisco, Santa Clara

Far North

Median sold price of existing single-family homes: $400,000

Median days on market: 15

Counties include: Butte, Lassen, Plumas, Siskiyou, Shasta, Tehama

6. Find a local agent

Working with a local agent who is very familiar with the market in your target area is the key to a successful homebuying experience in California.

Del Real suggests finding someone who will “coach you on a micro level about specific neighborhoods.” Buying a home is a huge investment, so having someone who is able to be honest and explain what you could expect in the future is important.

A good real estate agent will walk you through the process, explaining what is happening and why. They will communicate with you in a way that you’re comfortable with — whether you need real talk or a little sugar coating — and keep you in the loop along the way.

It’s important to do your due diligence when deciding what agent to hire. Here are a few things to look for:

• Past transactions – Make sure that the agent is skilled in the price range and type of home that you’re looking for.
• Reviews – There are a number of places to find agent reviews and testimonials from past clients. Do your research to make sure that the reviews are largely positive and the agent seems like someone you could work closely with.
• A connection – Don’t underestimate the power of simply getting along with your agent. Homebuying is a big deal and agents are skilled at working through the emotional rollercoaster of finding a home as well as the actual logistics.

7. Start the house hunt in earnest

Let’s be honest, if you’re looking for a new home, you’ve probably been scouring online home listings for a while. Well, now it’s time to get down to business, narrow down your list, and start going to open houses and scheduling showings.

Make a list of your “need to haves” and “nice to haves.” The clearer you are on what you need, the easier the process will be. For instance, if you have three kids, a one-bedroom home probably isn’t going to cut it, but you may be able to compromise on the size of the kitchen or number of bathrooms.

In this market, even though it’s showing signs of cooling off a bit, you may not get exactly what you want. So it’s important to know where you’re willing to compromise and where you need to stand firm.

Your agent will help you navigate available homes and help you decide when or if you need to settle. Del Real says we’re moving out of the period when people had to settle for a home when inventory was low but they were still getting an amazing interest rate. Now, he says, “in a way, you’re settling on [rates], but you get a selection of homes.”

When choosing a neighborhood or city to buy a home in, be aware of any potential hazards in the area like earthquakes, floods, fires, and tsunamis. The MyHazards website allows you to enter the address and evaluate the risk of danger associated with these events. Go through the seller’s disclosure with a fine-toothed comb to make sure you’re aware of anything that might be wrong with the property.

8. Make a strong offer

Once you’ve found the right California home, the next step is to make an offer. Depending on where you are in California, a home could be on the market for as little as eight days, so you might need to take action quickly.

There are a few things you can do to make your offer more appealing to a seller — and it’s not all about price. Sure, offering above asking is one strategy, but your agent can guide you through what makes the most sense depending on the market.

In a seller’s market, adding fewer contingencies, raising your earnest money, and buying in cash to avoid a financing contingency can make your offer stronger. In a buyer’s market, where there is less demand and more supply, there’s more room to include contingencies and hedge your offer a little lower.

Del Real notes that he sees more sellers in California accepting VA or CalHFA loans than he has in the last few years. As the market slows down, he says that sellers are more willing to consider buyers with these types of financing.

If you’re looking to negotiate on the purchase price, Del Real suggests having the seller give credits that will allow you to pay for mortgage discount points, effectively lowering your interest rate and saving you money over the life of the loan. Del Real suggests finding a seller “that’s willing to give you a 2% credit to buy down your rate.” This allows the buyer to make a higher offer while potentially paying less over the life of the loan.

9. Send your earnest money deposit

The earnest money deposit is typically between 1% and 3% of the purchase price and essentially shows the seller that you’re serious about buying their home. In a competitive market, a higher earnest money offer can be more attractive to sellers and give your offer an edge. If you walk away from the home purchase for reasons other than those specified in your contract, the earnest money could go to the seller, but in certain cases, you can get it back if contingencies weren’t met.

10. Order inspections and get an appraisal

While there is no law stating you have to have an inspection before purchasing a property, having a home inspection completed is always a good idea in addition to the appraisal your lender will order.

During the home inspection, a licensed inspector will check for visible damage or issues throughout the home. They will examine the structure, plumbing, HVAC system, and more. They won’t, however, be paying attention to the décor, paint color, or other aesthetics.

Depending on where the home is located and the specific area the home is in, you may need to order a specialized home inspection for termites or other pests, sewer, chimney (especially if the standard inspection flagged the chimney as having an issue), and radon.

Your mortgage lender will order an appraisal to determine the value of the home and see if your purchase price lines up with the appraised value of the home.

11. Shop for homeowners and specialty hazard insurance

Homeowners insurance in California averages around $1,200 annually — but that doesn’t include specialty hazard insurance.

While standard homeowners insurance might cover damages that result from wildfires, if you are in a high-risk area, it may be difficult to obtain an insurance policy. If you have trouble getting a standard insurance policy, the California FAIR Plan will provide basic fire coverage, and the Difference in Conditions (DIC) policies complement the FAIR Plan policy to provide similar coverage as traditional homeowners policies. The best way to determine the cost of a policy is to enter the home’s address in the FAIR Plan Dwelling Premium Calculator and then work with a broker to get a quote for coverage.

For earthquake coverage, you can price out policies with the California Earthquake Authority to find a cost estimate and then talk with your home insurance company. The average cost of earthquake insurance varies by city with Alameda costing $6.47 per thousand dollars of coverage which equals a yearly premium of $3,233 on a $500,000 home, and Fair Oaks costing $2.46 per thousand dollars of coverage which equals a yearly premium of $1,230.

12. Negotiate repairs

If the inspection turns up issues with the home, you may want to go back to the seller to negotiate repairs or credits for the repairs before you close on the home. In California’s competitive market, it’s not uncommon for sellers to deny repair requests. But as the market cools, even slightly, sellers could be more willing to negotiate.

13. Order a title search

A title company will issue a preliminary title report that will be reviewed by all parties, including your lender, and will include items such as property tax information, easements, CC&Rs, deeds, deed restrictions, liens, and any judgments against the title of the home. All of this is done to ensure the seller has a legal right to actually sell the property and there is what is known as marketable title.

Before they can sell, the seller will have to take care of any liens, encumbrances, or judgments against the property so you can legally take ownership once the sale is finalized.

14. Final walkthrough

This is your chance to complete a final inspection of the property. The final walkthrough is when you can verify that all agreed-upon repairs are complete and that the home is in satisfactory condition before you sign the closing papers and take possession of your new home.

15. Close on your new home

At an agreed-upon date and time, you will sit down with a notary and sign all of your final loan documents and closing documents from escrow. You will wire (or provide a cashiers check for) your down payment and closing costs to escrow, funds will be sent to escrow from your lender, funds will be disbursed, and the deed and note will be recorded with the county. And then, finally, you’ll get the keys to your new home!

Know the market and work with an agent

The best way to buy a house in California is to educate yourself about the market. Home prices in California are high, but buying a home, according to Del Real, “lets you secure your lifestyle, have the pride of ownership, build memories with your kids, and control the school district your kids go to and the neighborhood that you want to live in.”

Working with a California agent who will help you navigate the market is also key to a successful homebuying experience. Using our Agent Matching Tool, you will be matched with three top agents in your area, so you can decide who you will work best with on your California home buying journey.

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