What to Know Before Buying a Home in California

What to Know Before Buying a Home in California

California is home to 39.98 million residents, and 54.8% of them are homeowners.

If you’re considering buying a home in California, there are some critical elements to know before you jump into the home buying process. Today we’re going to dive into the nitty-gritty details of California real estate.

What to Know Before Buying a Home in California

When you’re looking into buying a home in any state, there are some basic things you need to know before jumping into the process. We’ll be covering the basics and going over what makes the process different in California.

Get Your Finances in Order

The first step in the home buying process is evaluating your financial situation. You need to take a look at your income, your debt-to-income ratio (DTI), your downpayment savings, and your credit score to see how much you can afford to spend on a home. The basic requirements for buying a home in California include:

  • Credit Score: A minimum score of 620 but a larger loan may require a score above 700
  • DTI: Less than 50% but ideally no more than 36% (with your future mortgage payment included)
  • Downpayment: 3% for FHA loans and as high as 20% for conventional loans
  • Closing costs: Typically 2% – 5% of the home’s price

Your Mortgage Options

You have three options for mortgages in California, and here are their requirements:

FHA Loans

  • Credit Score: 580
  • DTI: 50%
  • Downpayment: 3%

Conventional Loans

  • Credit Score: 620
  • DTI: 36%
  • Downpayment: 20%

Jumbo Loans

  • Credit Score: 700+
  • DTI: 45%
  • Downpayment: 20% minimum

Maintenance Costs

California homeowners spend roughly $2800 a year on home maintenance. While it’s recommended that you save 1% of your home’s value each year to cover these repairs, you also have the option of obtaining a home warranty.

You can use a home warranty to cover the costs of repairing mechanical systems in your home, such as your HVAC. If your air conditioning, plumbing, or appliances break down, you can submit a claim and have your home warranty cover the cost instead of having to foot the bill yourself.

If you’d like to learn more about home warranties in California, check out selecthomewarranty.com.

Best Places to Live in California

If you’re curious about the average home costs in some of California’s most popular cities, here’s the breakdown:

  • Los Angeles: $768,043
  • Irvine: $859,941
  • San Jose: $994,202
  • Newport Beach: $2,089,205
  • San Diego: $633,113

Unique Aspects of California Real Estate

When looking to buy a house in California, a few things are different about the process compared to buying a home in another state.

Mello-Roos Taxes

Some districts in California are known as Mello-Roos Community Facilities Districts. These districts are determined by the local government in response to Proposition 13 and limit property taxes. Because of this, properties in these districts are subject to Mello-Roos taxes.

Dual Agency

California allows dual agency, which means that the same real estate agent can represent both the buyers and the sellers. This could streamline the home buying process, but this situation makes it difficult for the agent to protect both parties’ best interests.

Attorneys and Presence at Closing

In California, it is not required to have a lawyer present at closing to represent the buyers and sellers. However, it may be worthwhile to hire a local attorney to answer any questions you may have.

When it’s time to close on your new home, most states require both buyers and sellers to be present. In California, both parties can be represented by real estate agents rather than being present themselves.

Are You Considering Moving to California?

If you’re thinking of buying a home in California, you are now armed with the essential information you need to know. Are you a current California resident, or are you thinking of moving to California? Let us know in the comments below!