How to Buy a House in California: A Homebuyer’s Guide
Updated: April 2, 2024
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According to a 2022 study, the average price of a home in California is $765,495. This reflects a roughly 7.1% increase compared to last year. Moreover, California home prices are substantially higher compared to the U.S. average.
House prices in California have been steadily increasing in recent years, and it's among the most expensive places in the U.S. to buy a home.
Buying real estate is a serious financial commitment. It involves a 20 to 30-year mortgage. If you’re like most people, the house you’re buying will be your primary place of residence. As such, it’s a good idea to learn everything you can before committing to your purchase.
If you’re looking to learn how to buy a house in California, MoneyGeek shares the steps that you should take to ensure you’ll make the best decision and avoid going into debt.
Choose an Ideal Location
Location plays an important role in determining real estate prices. The neighborhood, cost of living, access to amenities and other relevant factors affect how much it costs to buy a house in California.
To illustrate, you need to pay around $381,839 to buy an average home in Bakersfield, while it’s approximately $1,463,289 if you’re looking to purchase a house in San Francisco.
Calculate Mortgage Rates
It’s a good idea to understand your mortgage options if you want to buy a home in California. Different types of loans have varying rates, and the best mortgage for you will depend on your needs, profile and preferences.
Note that your income, credit score and debt-to-income ratio impact the kinds of mortgage you qualify for and your interest rates. We recommend that you shop around and compare offers so you can get the best deal.
Prepare Down Payment Requirements
Loans feature different down payment requirements. How much you’ll need to pay upfront depends on what type of loan you qualify for. Some mortgages require as little as 3.5% down, but you’ll need a 20% down payment for most loans.
Notably, qualified homebuyers may get no-down-payment home loans from the VA or USDA.
Get Pre-Approved for a Mortgage
It’s a good idea to get mortgage pre-approval before you shop for homes in California. This allows you to know how much money you can get from the bank.
Loan pre-approval includes a document that states the amount you can borrow and your interest rate for the mortgage.
Alternately, a prequalification is a verbal or online indication from the lender that you can borrow money from them. This carries less weight than a pre-approval.
Conduct a Home Inspection
Home inspections are an important part of buying a house. They can help you find problems in the house, which may end up costing you thousands of dollars in repairs if left undetected.
Plus, some lenders even require that your unit undergo a professional home inspection before they finance your mortgage.
Either way, completing a home inspection ensures you can take advantage of issues you find during home inspections when negotiating about the house’s price.
Close Your Mortgage Loan
Once the home inspection and appraisal have been completed, the lender will issue a loan offer. Review the document, and you can proceed with the closing process.
There are several costs that you’ll need to pay during this time. Nonetheless, there are various programs in California that can help you afford the closing expenses.
California Homebuying Details
Homebuying practices and regulations vary between states. If you’re buying a house in California, it’s important that you keep in mind real estate conventions that are specific to the state.
Notably, property tax in California is capped at 1%, but certain communities might be charged a special tax called the Mello-Roos Tax. Also, real estate agents in the state are allowed to represent both buyers and sellers.
Property Tax
California homeowners are required to pay property tax yearly. Currently, it’s 1% of the property’s value.
Mello-Roos Tax
In California, a city, county or school district may create a Mello-Roos Community Facilities District, which will result in an additional tax assessment for affected homeowners. Proceeds from this tax are used to fund specific infrastructure projects.
Dual agency
Real estate professionals in California are allowed to have dual agencies. This means one professional is allowed to represent both the buyer and seller, which facilitates a faster transaction.
Attorneys
You’re not required to hire a real estate lawyer to oversee your mortgage closing in California. Nonetheless, you’re free to get legal consultation if you’d like.
Environmental factors
Certain communities in California are exposed to wildfires. As such, it’s recommended that you get a good home insurance policy to protect your property.
Frequently Asked Questions About Buying a Home in California
Buying a house can be challenging, especially considering its financial and personal implications. MoneyGeek answered some commonly asked questions about the topic to help you learn how to buy a home in California.
Buying a house is a serious financial investment. As such, it’s a good idea to ask yourself these questions before you commit to a purchase:
- What’s the best location that’s available based on your needs and budget?
- What kinds of mortgages can you qualify for?
- How much is your down payment?
- Do you qualify for zero-down-payment options?
California real estate prices are among the highest in the U.S., and house prices in the state have been steadily increasing in recent years. Your financial situation and goals will determine if buying a house is good for you.
Home prices in California have increased roughly 7.1% year-on-year, and it has been steadily increasing for the past decade. If you’re financially prepared now, you can proceed with the purchase to avoid potential price increases. However, you never know what the housing market and the economy will do, so move forward with any purchase carefully.
California has one of the highest costs of living in the United States. However, home prices in the state vary significantly depending on the city. You can use MoneyGeek’s cost of living calculator to help you estimate the income you need for your preferred location.
The property tax rate in California is 1%. However, your city, county or school district may form an ad-hoc tax district and charge you a Mello-Roos tax.
MoneyGeek’s research shows that Clearlake is one of the cheapest cities in California to buy a home.
sources
- American Society of Home Inspectors. "Home Inspection Requirements for California." Accessed October 21, 2022.
- California Housing Finance Agency. "Homepage." Accessed October 21, 2022.
- California State Board of Equalization. "California Property Tax." Accessed November 17, 2022.
- California.com. "California's 11 Most Affordable Places to Live." Accessed October 21, 2022.
- Calvet. "Housing Benefits." Accessed November 25, 2022.
- HUD. "Homeownership Assistance: California." Accessed October 21, 2022.
- USDA. "Single Family Housing Direct Home Loans in California." Accessed October 21, 2022.
- USDA. "VA Home Loans." Accessed October 21, 2022.
- Zillow. "Bakersfield Home Values." Accessed November 17, 2022.
- Zillow. "California Home Values." Accessed November 17, 2022.
- Zillow. "Compare Today's Mortgage Rates in California." Accessed November 17, 2022.
- Zillow. "San Francisco Home Values." Accessed November 17, 2022.
- Zillow. "United States Home Values." Accessed November 17, 2022.