Buying a house in California

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Published on February 08, 2023 | 9 min read

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The Golden State offers something for everyone: cosmopolitan life in a big city like Los Angeles or San Francisco, the desert calm of Palm Springs, beachy vibes in an oceanside locale like San Diego, remote peace and tranquility in the northernmost corners of the state. However, the housing market in California can feel daunting. The median price tag of a home here was more than $774,000 at the end of 2022, according to the California Association of Realtors. Buying a home here is possible, though. If you’ve been California dreaming, here’s a look at how to approach the state’s home buying process.

Deciding where to live in California

California is huge: 163,695 square miles, to be exact, according to Census data. So, if you aren’t set on a specific location yet, take a long look at the map. Does the ocean air appeal to you, or are you looking to spend time in the desert sun? Do you need the space of a single-family home, or will a smaller condo meet your needs? Redwood trees and hiking trails, or a man-made skyline and loads of people? Ask yourself the critical questions about what you need for your lifestyle.

Of course, it’s your budget that will ultimately be the deciding factor. The cost of living in California is notoriously high, but there are places where you’ll spend a bit less on life’s essential expenses. For example, Sacramento — the best place to live in the entire state, according to our recent rankings — is more than 28 percent cheaper than Los Angeles. Use Bankrate’s cost of living calculator to get a sense of what you’ll spend in any of the state’s major metro areas.

How to buy a house in California

1. Save for a down payment

The average down payment on a new home in California was $103,000 in the spring of 2022. That’s a staggeringly high sum if you’re on a tight budget, but you probably don’t need that much cash to buy a place here. With a conventional loan, you’ll need a minimum down payment of 3 percent of the purchase price. For example, if you’re buying a place for $500,000, you would need at least $15,000 (plus enough to cover closing costs). So, the first step of buying a house in California is cutting back on your spending and putting together a strategy for saving up a down payment.

You don’t necessarily have to do all the work on your own, either — there are many down payment assistance programs available. Most of them are geared toward buyers who earn under a certain threshold of money each year, offering low- and moderate-income individuals a way to buy a home. For example, Redding and La Mesa are two of the cities with options to help buyers manage their upfront expenses.

2. Get preapproved for a mortgage

Getting preapproved for a mortgage is a crucial piece of buying a house in California (or anywhere, really). It shows that a lender has done a preliminary review of your finances and is likely to loan you a certain amount to buy a home. Many lenders can issue you a preapproval letter online. It’s an important piece of proving to sellers that you are a qualified buyer.

3. Find the right lender

You don’t necessarily have to get your mortgage through the same company that offers you a preapproval. In fact, you will want to compare multiple lenders to determine who can give you the best rate. Start by looking at the best lenders in California, and keep in mind that some lenders specialize in certain programs. For example, borrowers looking for FHA loans will have a completely different set of needs than borrowers who need jumbo loans.

4. Find the best local real estate agent in California

Your lender helps you get the money you need, but an agent helps you find where to spend it. Working with a real estate agent gives you professional, expert guidance as you navigate the challenges of being a buyer — local pros know where to look based on your budget, and how much to offer once you find something you love.

5. Start house hunting

Once you’ve got the right agent by your side, it’s time to start browsing listings and checking out open houses. Know what you absolutely must have in a home, and what kind of compromises you’re willing to make. As you start your search, have a solid understanding of how much space you’ll need. If you’re comfortable with condo living, you can save a lot of cash: The median price of condos and townhomes in the state is around $184,000 less than a single-family home, according to figures from California Association of Realtors (CAR).

6. Make an offer

When you’re ready to make an offer on a home in California, it’s important to recognize that buyers are getting an increasing amount of bargaining power here. While homes were selling for more than listing price during the peak of the pandemic-fueled real estate surge, those days are gone. In December, the sale-to-price ratio was just over 96 percent. That means that a home listed for $1,000,000 would actually go for closer to $960,000. With that in mind, consider offering less than the listing price as a starting point — your agent will help you land on a reasonable offer.

7. Get a home inspection and appraisal

An accepted offer doesn’t mean the purchase is a done deal. Instead, you now enter a review period that allows you to verify two key components: that the house is in good shape and that it’s worth what you’re paying. If you’re getting a mortgage, your lender will require an appraisal, which makes sure that the property’s valuation is in line with the amount of money you’re borrowing. A home inspection is technically optional, but it’s highly encouraged. A professional home inspector can identify issues that might be hiding beneath the surface — plumbing or electrical issues, for example — saving you a big headache and potentially a lot of money later. Plus, a home inspection only adds a few hundred dollars to your budget, and if it uncovers any issues, you may be able to get money back in concessions from the seller.

Requirements to buy a house in California

Can I afford a house in California?

The answer depends on how much you earn each month, how much you have in the bank, how much you must spend on other debts and how much houses cost in your particular part of the state. For example, in San Francisco — where median home prices are $1.54 million, according to CAR — the monthly mortgage payment on a median-priced home would be $7,787. (That’s for principal and interest, based on a 20 percent down payment and a 30-year mortgage at a 6.5 percent interest rate.) Head to Sacramento, where median prices run a significantly lower $485,000, and payments for a median-priced home with the same loan parameters woud be just $2,452.

Bankrate’s new-home calculator can help you gain an understanding of what you can actually afford to buy. No matter where you’re thinking about buying a house, affordability starts with the 28 percent rule: Most experts advise spending no more than 28 percent of your monthly income on your housing expenses. So, if you earn $10,000 each month, you’re ideally capped at $2,800.

One important note: In many areas of the state, prices are slowly declining as the housing market cools. Median prices dropped by 2.8 percent between the end of 2021 and 2022, and the year ahead looks more favorable for buyers — as long as you’re OK with locking in a mortgage at the current rates.

First-time homebuyers in California

If you’ve never owned a home before — or if you haven’t owned one within the last three years — the California Housing Finance Agency considers you to be a first-time homebuyer. California can be tough for first-time buyers, but that status might put you in line for a low interest mortgage program and/or a deferred loan for your down payment, all part of California’s first-time homebuyer programs. You’ll need to meet the state’s income limits and satisfy a range of other requirements, including completing a homebuyer education course.

Final walk-through and closing

After you’ve done all this work to buy a home in California, there are just two remaining steps before you get the keys to your new place. First, you’ll have one last visit to the home before you officially own it. Aim to schedule your final walk-through shortly before the closing. Make sure that the home is in good condition, that the owner has removed all their belongings and that the property is free of issues.

Finally, while the closing is exciting — you’re about to be a homeowner! — it’s also one more area where you’ll need to spend extra cash. Closing costs in California average around 1 percent of the purchase price, according to CoreLogic’s ClosingCorp, but the actual amount that you will shoulder varies based on your lender and your agreement with the seller. You’ll have a firm understanding beforehand, based on your closing disclosure. Be sure to ask what type of payment is accepted for all your closing costs, as you’ll likely need to go get a certified check or a cashier’s check. Then, when closing day arrives, be sure to bring the proper identification, and be ready to sign a mountain of paperwork. Once you’ve completed all the necessary work, the keys are yours. Congratulations — you now own a piece of California.

FAQs

It all depends on your finances. California makes a great home, with stunning ocean views, challenging mountain hikes and tranquil desert towns. However, the cost of living here is high, as are home prices, and the natural beauty comes with natural risks, like wildfires and earthquakes. Even so, buying a house in California is likely to be a wise investment. According to data from RenoFi, average California home prices will top the $1 million valuation mark in 2030. So, if you buy today, you’ll enjoy some healthy appreciation over the coming years.
That depends heavily on where exactly in the Golden State you want to live. If you’re looking for the big-city energy of San Francisco, you’re looking at a steep price tag: Median home prices there topped $1.5 million at the end of 2022. However, in a market like Fresno, you’ll need a lot less cash: The median sale price there is a far more affordable $396,000, according to data from the California Association of Realtors.
With conventional loans, lenders look for a minimum credit score of 620. If you’re planning to apply for an FHA loan, some lenders will accept scores as low as 500, but you’ll need to come up with a higher down payment to account for the added risk. Keep in mind that the best terms and lowest rates are reserved for credit scores that fall into the “excellent” category: 740 and above.
Yes. In California you can buy a house from out of state or even from a different country. If you aren’t on the ground in the Golden State, though, it becomes even more important to find an expert real estate agent who can help you navigate the complexities of finding a home that fits your needs.