Buying a home can often be a long and complicated process. In this article, we’re going to break down the entire procedure into the essential steps in order to give you an overview of what to expect before you embark on your home-buying journey.
For many, buying a home in California can often feel like a long and drawn-out process filled with unforeseen complications, loads of paperwork, and stress. However, through properly informing yourself before you dive into the deep end of this major purchasing process, you can effectively mitigate and eliminate many of the negatives that come along with the experience.
In this article, we’re going to give you a bird’s eye view of the entire home-buying process from planning your finances to signing the dotted line and closing the deal.
Evaluate Your Current Financial Situation
Buying a home is a major commitment that comes with many responsibilities. Just like any other obligation you might sign up for, you’ll need to make sure you’re ready on both a financial and personal/emotional level before you take the plunge.
While homes are great investments that usually go up in value over time, in almost all cases you’ll be required to put down a good amount of money up-front. In California, the median selling price for homes is $493,100. You’ll need to be prepared to pay for a mortgage and property taxes, which combined averaged to about $2,542 per month.
This can be a very big financial commitment for many, and we haven’t even looked at the one time costs. At the very least, you’ll probably need a minimum down payment of 3.5% of the closing price — that’s the minimum down payment for an FHA loan. You’ll also need to account for around $15,000 in closing costs.
Outside of financial concerns, make sure you’re ready to undergo the major life changes that come with owning a home. You’ll need to be at a point in your life where you have some stability and can plan to stay in one place for an extended period of time.
Find a Great California Real Estate Agent
Working with an experienced real estate agent is one of the best things you can do to ensure that your buying experience is as stress and pain free as possible. A good real estate agent will be able to help you time the market, get you on-demand viewings, and negotiate a better deal on your behalf.
You won’t need to worry much about what an agent will cost you: typically, the seller will pay for the buyer’s agent’s commission fee, so a real estate agent will effectively be providing you with their services for free.
Clever Partner Agents also offer buyers a pre-negotiated $1,000 home buyer’s rebate to help cover closing costs. This means that not only are you getting professional services that will get you a better deal, but you’ll also get some cash back.
Read Up on Local Real Estate Market Trends
Like many things in life, real estate markets tend to operate in cycles. Certain times of year are better times to sell a home, others are more amenable to buying. The time of year in which you choose to buy your home can have a drastic effect on what the closing price ends up being.
In California, you’re likely to find the largest number of houses up for sale between April and June. This is the perfect time to go house hunting in the state as the higher inventory means you’ll have a larger selection of houses to choose from. However, if you’re looking for the best bargain possible, waiting until the winter months may prove fruitful: homeowners trying to sell their houses during these months are often doing so out of more immediate necessity and are often more willing to compromise on price because of this.
Currently, the median home value in the Golden State is $548,700, which represents 2.6% growth over the past year. Values are expected to rise another 2.0% over the next year. This varies greatly from city to city: the median home value in Fresno is only $243,700, while it’s $1,353,500 in San Francisco.
An experienced real estate agent can help you decide on what areas to focus your search in and what time of year you should plan to close. The expertise that a good realtor can bring to the table is indispensable.
Get Pre-Approved for a Mortgage
Lenders pre-approve buyers for mortgages after looking through the candidate’s financial history and determining that they will be able to make all necessary mortgage and down payments. Once a buyer has been pre-approved, the only thing standing between them and their mortgage is confirmation that the home being purchased will be adequate collateral for the loan.
There is often confusion between the terms “pre-approval” and “pre-qualification” in relation to mortgages. While they both bear certain similarities, to get pre-approved for a mortgage, a buyer will need to go through a much more thorough vetting process – a lender will need to examine the applicant’s financial history firsthand. In contrast, buyers can get pre-qualified for a mortgage after only self-reporting the required financial disclosures.
To get pre-approved for a mortgage, you’ll need to provide a lender with all of your relevant financial history data. This includes your credit score, documents proving your income/pension/Social Security payments, and documentation of any other assets you may have such as investments or bank savings accounts. They will also require you to present valid personal identification such as a driver’s license or passport, and in some cases a Social Security number.
Start House Hunting
Once you’ve been pre-approved for a mortgage, it’s time to start house hunting! The first step in this process is determining what your budget is — how much money can you afford to spend on your new home? Setting a maximum purchase price will help you figure out what areas you want to focus your search.
Using online research tools like Zillow Research can help you find areas of the state that match up well with your budget. If you’ve decided that you can budget up to $400,000, for example, then with a bit of research on Zillow, you’ll be able to find that Riverside may be a good city in which to concentrate your search. When deciding on a region, you’ll want to make sure the area has good medium-to-long-term market outlook, good schools, and low crime rates.
While doing your own research is beneficial, it’s no substitute for partnering with a real estate agent who has years of experience under their belt. A good real estate agent will know your target market like the palm of their hand and be able to make suggestions and recommendations that will prove invaluable.
Make an Offer
The first step in making an offer on a home you’d like to purchase is contacting the seller’s agent to ask whether there are any current offers on the home and if it’s still possible to make an offer. If there are multiple offers on the home already, you may end up in a bidding war.
If you’re given the greenlight to make an offer, you’ll need to give your earnest money to a third party (usually an escrow agent) and draft up your offer letter. The offer letter will include information such as the address of the home you’re purchasing, how much you’re willing to pay, how the purchase will be financed, how long the offer is valid for, any required state provisions, and an outline of any contingencies that would invalidate the offer. If the seller accepts, this letter will become binding.
When buying a home in a seller’s market, it can help to include a mortgage pre-approval letter in your offer. Putting down a large earnest money deposit can also increase the chances of your offer being accepted.
In the end, the best thing you can do to secure your bid on a home is to work with a top-notch real estate agent. Experienced realtors will be able to help you draft up a competitive offer letter by giving you insight into how much earnest money to put down, how much to offer for the home, and much more.
Inspections and Negotiations
Once your offer is accepted, you’ll begin the inspection process. In most cases, the buyer is responsible for the home inspection fees.
A home inspection will check for any damage to the home and determine whether or not there are any harmful contaminants in the house such as lead paint or asbestos. If anything unexpected turns up, the buyer and seller may enter negotiations.
Depending on what exactly was discovered during the inspection, the buyer may ask the seller to cover the repair costs, lower the price of the home, or pay for some of the closing costs. Having a top-notch real estate agent advocate for you during this process is vital: they’ll be able to use their years of negotiation experience to make sure you get a great deal.
It’s Closing Time!
When both buyer and seller have finished negotiations, both parties enter the final phase of the home-buying/selling process: closing. At this point, you’ll need to get an appraisal — a third party valuation — of the home. You’ll do a final walkthrough and then meet with the seller, lender, title company representative, and both parties’ real estate agents to fill out all the necessary paperwork.
In general, you can expect to pay about 3% of the closing price in closing costs. Based on the median selling price in California — $493,100 — this will work out to around $15,000. This will vary greatly based on the location of the home you’re buying, however. In Fresno, you can expect to pay around $7,488, while in San Francisco you’ll need to budget for about $38,970 in closing fees.
Expenses that contribute to closing costs include transfer taxes, property taxes, mortgage fees, and more. Your real estate agent will be able to go over all the necessary fees with you and give you an estimate as to how much you can expect to pay to close on your home.