Buying a House in California - How to Prepare

Watching your friends and family purchase homes of their own in California can give anyone real estate FOMO. But there has not been a better time to jump into the market thanks to historically low interest rates. 

The decision to buy a home is a big step in anyone’s life. It requires diligent saving, a dedication to constantly searching for new listings, and the ability to withstand rejected offers in a red hot housing market. 

California has some of the most sought-after real estate in the world, and in this seller’s market, buyers are competing with each other in their quest to purchase their dream home. From San Francisco to San Diego and everywhere in between, first-time and experienced buyers wonder how to prepare to buy a home.

For that reason, we compiled a quick guide to help Californians get ready to buy.

How to start your California home search 

Purchasing a home is one of the most sizable transactions a person can make, and buyers have to prepare themselves for the homebuying process. California homebuyers have to get their financial records in order, attend property tours or open houses, and negotiate with sellers laden with offers.

But first, buyers have to weigh the pros and cons of where they want to live and how they work. California is a large state that offers buyers the chance to own a home near the magnificent redwood forests outside of San Francisco or find a mountainous post-modern retreat in the hills of Los Angeles in Southern California. 

For instance, a tech executive that just landed a job at SpaceX might want to purchase a South Bay LA home in El Segundo, as the neighborhood sits south of LAX and is minutes away from the Hawthorne tech hub. 

Buyers have to ask themselves where they are in their life as a beachside compound in Santa Monica offers a whole different experience from living in a gated Orange County community. As buyers research what cities and home styles fit their needs, they should prepare their budget and figure out how they will finance their purchase. 

Timing is another important factor to consider because if you need to close on a home quickly for a new job, buyers may need to make a pricier offer and waive certain contract contingencies to win over sellers. Conversely, buyers with no time constraints can afford to wait for the right home or hold out for a better home price. 

Save early and often 

Anyone buying a California home needs a sizable amount of savings behind them for a down payment, and getting started early is the best option for most buyers. While some experienced or wealthier homeowners can make all-cash offers on a home, most Americans do not have that kind of spending power and should save early and often. 

Setting up a monthly budget and tallying costs goes a long way, as buyers need to understand their income and how much they can allot for a down payment. Cutting out excess spending helps, but realistically, buyers need to save significant portions of their paycheck. Luckily, banking apps allow Californians to set up automatic savings transfers while perusing the best LA neighborhoods.

Saving is critical because housing stock in California is tight, and sellers routinely get offers well above asking prices for hillside Hollywood Hill homes in LA. Buyers need to have a convincing nest egg built up to confidently make offers based on how much they value the property. 

Californians also have to think about closing costs. In Los Angeles for example, closing costs can total between 2% and 3% of purchase price, in addition to a buyer’s down payment.  An easy way to offset these fees is by working with a buyer’s agent that offers commission rebates when a buyer closes on a home. 

How to hire a buyer’s agent

Searching for a property in your price range has never been easier, seeing as homebuyers can browse listings from the comfort of their home office or on the go from a smartphone. 

While searching is easier than ever, the homebuying can still be a complicated process, and buyers will want an experienced agent guiding them through the transaction. Buyers no longer have to rely on agents to feed them listings from the MLS, but brokers do act as expert advisers at the most important moments of a deal.

Finding a home is the first step in the homebuying process, and the role of the buyer’s agent has evolved. Brokers help connect buyers to mortgage lenders, organize open house tours, provide neighborhood comparables, prepare offers, and help with the negotiation process in the critical final mile of the transaction. 

A great real estate agent guides their clients through the offer process, providing expert negotiation skills when navigating the sales contract. While most buyers go with the first or second agent they meet, Californians should interview multiple agents to learn about their local expertise and ask if they offer commission rebates when closing a deal on a property. 

Commission rebates are legal in 40 states and essentially allow buyer’s brokers to reward clients with a percentage of the commission fee earned when a buyer closes on a purchase. 

For example, when a buyer purchases a Newport Beach home, traditional agents get paid around 3% of the closing price. But modern, tech-enabled brokerages like Prevu Real Estate have streamlined the searching and home buying process, allowing the company to provide a commission rebate to their clients.

Get pre-approved for a mortgage 

After picking your dream neighborhood in Orange County, it is time to start attending property tours and making offers. But before you can set up a day of tours and sign COVID-19 disclosure forms with your agent, you need to get pre-approved for a mortgage. 

After saving for years, buyers may think they have an idea of how much they can afford when paying a mortgage, but only a mortgage lender can accurately determine just how much or little you can afford each month in mortgage payments. 

While you can plan out your budget and create a savings plan for a down payment, your lender will go through your finances and credit score to discern just how much you can afford in monthly mortgage payments. Buyers will need several years worth of pay stubs, a list of assets owned, debt liabilities, and tax returns when getting pre-approved by a bank. 

Mortgage lenders use these documents to figure out how much they are willing to loan you, and having a clean credit slate helps buyers applying for a loan. Avoid missing payments and do not open any new lines of credit in advance of buying a home in California, as these can be strikes against you in the eyes of a lender. 

While buyers need to organize their financial history for a mortgage, no rule says Californians need to work with the first lender they meet. Buyers should interview as many as possible to shop for the best rates. 

How to prepare to submit offers 

Once you find that perfect Mission Revival mansion in Santa Barbara, it is time to submit the offer. In a seller’s market, inventory is tight, and buyers have to place aggressive bids reflecting how they value the property. 

A buyer’s broker can provide comparable prices, historical data, and recent trends that help buyers make informed offers on homes for sale.

Sellers generally do not want to languish in negotiations, so making a hefty offer goes a long way. Another way to woo a seller is waiving inspection contingencies, which is perfect for handy buyers interested in purchasing a fixer-upper home. 

How important is it to hire a home inspector? 

If a seller is interested in your offer, it is time to have a home inspector ready to examine the property quickly.

The inspector looks for structural flaws and issues not easily uncovered during property tours, which can save prospective homebuyers thousands of dollars in repairs down the line. Once the inspector states the property has a clean bill of health, buyers inform their mortgage lender they are ready to purchase the property. 

Home appraisals help lenders determine the home value during the mortgage underwriting process, and so long as the appraiser notes that the listing price matches the value of the house, the mortgage is approved. Buyers will want to use this time to look for homeowner’s insurance, as most mortgages require this before signing off on the loan. 

But so long as everything checks out and the mortgage comes through, buyers are closer to the final walkthrough of their California home. 

The final walkthrough

After a month or more of due diligence, negotiations, and appraisals, California homebuyers can go on their final walkthrough before officially closing the deal. 

You should know the ins and outs of the property, what repairs the house needs, and are sure that the titles are all in place. Purchasing a home is a laborious affair, as it is an investment that changes a person’s life, but agents at Prevu Real Estate can guide you through the entire process.

Whether buying a Venice Beach bungalow or single family home in Pasadena, buyers have to find furniture to finish the home once they close. Working with agents that provide commission rebates provides homeowners with thousands of dollars in savings that can come in handy for the decor to make their house a home.

Prevu Real Estate, Inc. is a licensed real estate broker in California, license number 02134758.