How To Buy A House In California

*As of July 6, 2020, Rocket Mortgage^® is no longer accepting USDA loan applications.

Buying a California home is a major financial decision and responsibility that shouldn’t be taken lightly. Homeownership can feel like a lengthy process that involves a lot of paperwork and several steps.

That said, even though the home buying process can be lengthy, understanding what you’re getting into before you start the purchase process will help you minimize stress and anticipate next steps.

Buying A Home In California: 5 Key Steps

When you begin looking for homes to buy, you should look for each home’s value and your estimated mortgage rates based on the market. It’s important to remember that every real estate market is a little different, which is why researching is so important.

California has some unique practices in place for purchasing property, so you’ll want to get familiar with them before starting your home buying process. Let’s discuss the steps to buying a new home in California.

Step 1: Understand Your Financial Situation

Since a mortgage is such a major line item in your budget, it’s important to check whether you can afford a home in the first place. This is especially true in California, where the median single-family home price is $863,790, according to the California Association of REALTORS^®.

You’ll want to be aware of your credit score since this three-digit number helps lenders determine your creditworthiness or the likelihood that you’ll pay back your mortgage loan on time. In most cases, a credit score needed to buy a house is a minimum of 580 for an FHA loan, 620 for a conventional loan and 580 for a VA loan at Rocket Mortgage^®. You can check and monitor your credit score by using Rocket Money. You can also check your credit score on Rocket Money^SM to see what is affecting your score and correct any false information.

Once you’re familiar with your credit report, you should assess your income situation. Have you been able to pay your rent or monthly payments on time for the past year or so? Do you have regular income from a verifiable source?

It can also be helpful to use a mortgage calculator to see how much house you can afford on your income. Don’t forget to include other expenses like closing and moving costs, plus the amount you’ll need to come up with as a down payment.

Step 2: Know The Needed Requirements To Buy A House In California

Understanding the requirements to qualify for a mortgage is essential. Besides ensuring you have enough for your down payment, you must also account for closing costs. A mortgage lender can help you figure that out when you get preapproved for a mortgage.

The typical recommendation is to put at least 20% down to avoid paying private mortgage insurance. However, you can make a down payment as low as 3% for eligible conventional loans and 3.5% for FHA loans. No down payment is required if you qualify for a USDA or VA loan. You don’t want to forget other costs like property taxes, appraisal and title insurance. You should see if you’re eligible for first-time home buyer tax deductions.

If you’re going to buy a house from a family member or you’re looking at buying your first investment property, the requirements may be different depending on how you intend to pay. For instance, a higher down payment may or may not be required. Speaking with a Home Loan Expert at a lender like Rocket Mortgage will better prepare you for what could arise on your hunt for a California home.

Step 3: Determine Your Eligibility For A CalHFA Loan

CalFHA is a loan program for first-time home buyers in California to assist those who qualify with low-interest mortgage rates. CalFHA also offers loans with zero-to-low interest rates for down payment assistance. There are different eligibility criteria (for example, in Los Angeles County, the income limit is $153,000), so you’ll want to check CalHFA’s website for more details.

CalHFA doesn’t disburse loans itself – you’ll need to work with a CalHFA Preferred Loan Officer. This person will help you determine whether you qualify and how much of a loan you can afford. After getting prequalified, you must attend a first-time home buyer course (fees vary). It’s important to understand that your choices for lenders may be limited if you use this program. Many lenders, including Rocket Mortgage, don’t participate.

Step 4: Use Down Payment Assistance Programs In California

Saving for a down payment and closing costs can be a hurdle for many, which is why there are programs from CalHFA that offer loans to help. These types of loans are deferred, meaning they won’t need to be repaid until you pay your mortgage in full, refinance or sell the home. This helps keep your mortgage payment at an affordable amount.

The MyHome Assistance Program offers a loan to help with closing costs or your down payment (or both) for conventional or USDA loans. This loan amount is up to $10,000 or 3% of the appraised home’s value or purchase price, whichever is less.

For those taking out an FHA mortgage, MyHome also offers loans up to $10,000, or up to 3.5% of the appraised value or purchase price, whichever is lower. For VA loans, you can receive up to 3% of the appraised value.

One hurdle you might run into is that these down payment loans often require a lien placed on the property to ensure the loan is paid off when the property is sold or the mortgage is refinanced. Mortgage companies, including Rocket Mortgage, often don’t agree to these terms. In order to give yourself the most possible options, it’s best to look for grants, because they don’t have to be paid back under any circumstance.

Step 5: Speak With A Reputable Real Estate Agent

Speaking with an experienced real estate agent can help you decide where to focus your search and the best time of the year to look for a home. When speaking with an agent, it’s helpful to talk about your wants and needs, such as location, the type of home you want and nearby amenities.

The real estate agent’s expertise can also help you determine whether you want to wait or move forward with becoming a homeowner, even if you can afford to do so now.

Our friends at Rocket Homes Real Estate, LLC can help you find an agent in your area who can align with your goals and help you negotiate while walking you through the process.

The Bottom Line: Do Your Due Diligence When Buying A House In California

Buying a California home can be a long and complicated process, not to mention a huge financial commitment. Taking the time to do thorough research beforehand will give you an idea of what it’ll cost, the risks involved and the type of paperwork you’ll need to provide before offers are accepted. There are many benefits to homeownership if you do decide to move ahead with the decision, so try your best to enjoy every aspect from start to finish.

If you’re ready to get started on your home buying journey, you can apply online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 452-8179.