California Real Estate Tips Buyers Guide

Buying A California Home

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Thank you for reading our Buyer’s Guide to California Real Estate brought to you by CAPropertyFinder.com. This is a free report written to help simplify the real estate buying process for California home buyers.

We will continue to add to and improve this guide based on your feedback. Please e-mail or call us at 1-800-287-1808 with questions, comments, or suggestions.

Scroll down to begin reading or jump to one of the sections below: 

Determine What You Can Afford
Know The Market
Location, Location, Location
Protect Your Investment
Work With Real Estate Professionals


 

DETERMINE WHAT YOU CAN AFFORD

There are a few steps we recommend taking at the beginning of your search for a new home.

Check Your Credit – Get a copy of your credit report and then make sure it is as clean as possible. The better your credit, the better rate you can qualify for on your mortgage loan. This can make a difference of $100s per month. 

Talk to a Lender – Find a mortgage lender you feel comfortable with. A good place to start is with a lender who you already have an account with. Lenders can offer you great insight into housing affordability. Your lender can also pre approve you for a loan, which can greatly help when negotiating with sellers.

Some developers can set you up with one of their preferred lenders, which can usually come with special incentives

Your lender is required by law to give you certain disclosures about the term, rate and cost of your loan.

You can view mortgage rates online at CAPropertyFinder.com to compare the rate your lender is offering you to the national average.

Understand the True Costs of Homeownership – Your mortgage payment is not your only housing expense. Other expenses you might incur include the following.

◦ Insurance – Homeowners insurance (plus flood and earthquake where applicable). 

◦ Real Estate TaxesRead: California Real Estate Taxes

◦ Maintenance – Most of the components of your home will need to be maintained regularly and eventually replaced. Save for these costs in advance. Contractors and vendors can give you replacement cost estimates and the expected life of the current components so you know what to save each year.

◦ Association Fees – There is typically a monthly fee associated with owning a home in a neighborhood, subdivision or condominium development. These fees cover maintenance of the common areas, insurance, and other operational expenses depending on the property. These fees can range from as low as $10s per month to over $1,000 per month.

◦ Utilities – Water/Sewer, Gas, Electric, Trash, Cable, Phone and Internet

◦ Furnishing/Decorating – If this is your first home, do you need to purchase additional furniture for additional space in your new home?

◦ Closing Costs – When you purchase your home, there can be many closing costs that you may not expect like Appraisal Fees, Points to your Lender, Pest Inspection, Home Inspection (Also Read: Why You Need A Home Inspection)

◦ Moving Costs – Hiring a third party moving company can cost $500-$1,000 or more. To save money, consider moving yourself, but you will still have to purchase boxes, packing peanuts, box tape, protective cloths, and rent a moving truck.

How much of your income should you spend on a home?

Here are some general rules to follow when figuring out how expensive of a home you can afford.

Freddie Mac says that you can typically afford a home worth 2.5 times your annual salary. 

Freddie Mac is the Federal Home Loan Mortgage Corporation (FHLMC) and is a Government Sponsored Enterprise that buys mortgages on the secondary market. Freddie Mac buys loans given to homeowners which provide the funding to lend the money in the first place.

Lenders typically recommend that you spend no more than 28-31% of your gross monthly income on housing; which includes principal, interest, insurance and taxes.

Example: If you make $100,000 per year, your gross monthly income is $8,333/mo ($100,000 ÷ 12). Multiplying your gross monthly income by .28 and .31 will give you your 28-31% range which equals $2,333 – $2,583. In this case, you would want your monthly housing payments to be less than $2,333 – $2,583.

Your monthly debts should not exceed 30-40% of your gross monthly income. This includes the mortgage loan you are thinking about getting, credit cards, student loans, car payments, etc.

Example: If you make $100,000 per year, your gross monthly income is $8,333/mo ($100,000 ÷ 12). Multiplying your gross monthly income by .30 and .40 will give you your 30-40% range or $2,500 – $3,333. In this case, you would want your monthly debt payments to be less than $2,500 – $3,333.

 

KNOW THE MARKET

Understanding the current conditions of your local real estate market is important to your initial home search. Speaking with one of our expert real estate brokers at CAPropertyFinder.com will help you determine the area and price range to search in.

Buyer’s Market or Seller’s Market? 

A “Buyer’s Market” is characterized by a period of oversupply and falling prices. Oversupply means there are many substitutes so many sellers are chasing only a few buyers. Falling prices means there is no urgency for buyers. During a Buyer’s Market, the buyer holds the power and can negotiate from a position of strength.

A “Seller’s Market” is characterized by a period of undersupply and rising prices. When supply is short there are more potential buyers than there are properties for sale. This forces prices up and gives power back to the sellers. Sellers can hold out and ask for full list price.

What do the “Comps” look like?

Comps” are properties that are comparable to each other – substitutes.

Brokers can create a Comparative Market Analysis (CMA) that compares the properties that fulfill your real estate search criteria.

When buying or selling it is important to always factor the comps into your decision making process. Comps will show you approximately where to list your home for sale or where to make an offer on a potential purchase.

Always consider Active, Pending and Sold properties. Active listings are those that are currently listed on the market for sale. Pending sales are those which are under contract to close. Sold properties are those which have closed escrow and are now possessed by the new owner. These three types represent various stages of a real estate transaction (start to finish) so they can give you a gauge of where pricing is possibly moving.

How many “Days on Market” have the properties been listed for? If properties have been listed for an average of several months or years it means they have been difficult to sell. If properties are selling with only 30-120 Days on Market it means they selling relatively quickly. Days on Market are a good gauge of demand within a given market.

How many of the properties listed are distressed?

Distressed properties are those in foreclosure or pre foreclosure, short sales, or real estate owned properties (REO). These properties typically sell at a discount but are difficult to close due to the complex buying process and always come in an “as-is” state.  This means the property may not include appliances, new paint, landscaping, countertops, or it may have unsettled liens from the government, contractors, associations, etc.

Foreclosure/Pre Foreclosure – Foreclosure is the process a lender goes through to take possession of a property that is used as collateral for a debt (i.e. a home mortgage loan). When a homeowner falls behind on their mortgage payment a lender can take possession of and sell the home. 

Short Sales – Short Selling is an alternative to foreclosure. When a homeowner is delinquent on their mortgage, sometimes a lender will approve a short sale, rather than foreclosing. The lender will sell the home and allow the buyer to remain an occupant until the home sells.

Real Estate Owned (REO) – If a lender forecloses on a property and is unable to sell the property at auction, the lender takes possession of that home. The Real Estate is now Owned by the lender, thus the name Real Estate Owned.

Also Read: Should I Buy A Foreclosure?


 

LOCATION, LOCATION, LOCATION

The location, area crime rate, school zone, and potential deed/HOA restrictions of your new home are important factors to consider at the beginning of your search.

Don’t Buy the Most Expensive Home in a Neighborhood – The most expensive home in the neighborhood will be compared to the other homes in the neighborhood, all of which are less expensive. The less expensive homes in the neighborhood will pull down the price of the most expensive home; this is the idea behind the principal of regression

Conversely, the principal of progression shows that less expensive home prices will be pulled up by the more expensive homes in the neighborhood. Thus you will benefit from purchasing a less expensive home in a neighborhood of more expensive homes.

Check the School Zoning – Most school boards show the school zoning online. Find out which schools your potential home is zoned for and research those schools. Being in a top school zone will help you when it comes time to sell; schools are a top priority for many homebuyers.

Check the Crime in the Area – Some police departments, such as LAPD, have crime statistics online. If the police department in your area doesn’t do something like this, just call them, they would be happy to give you advice on a safe place to live. In Los Angeles, we recommend using LA Crime Map.

Get a Title Report – Title Reports show tax, mechanics and HOA liens that can and will affect conveyance of the property to you as the new owner. These can also show hidden costs and amounts owed.

Learn About the Homeowners Association (HOA) – If there is an association, read the legal documents through before purchasing, particularly in a condominium or townhome. These documents outline the rules that govern the community and could seriously impact you.

Some Common HOA Restrictions Include: 

Breed/weight restrictions for pets

Hard surface flooring requirements

Rental restrictions

Holiday decoration restrictions

Restrictions for grills or fire pits

Restrictions on construction/improvements


 

PROTECT YOUR INVESTMENT

Inspectors – Hire a home inspector. This can pay off big for you. Inspectors can let you know if there are any potential problems lurking before you purchase a new home that could result in large, unexpected expenses. 

Warranties – There are several homeowner warranty companies that will provide extended warranties for your home. They will warranty HVAC’s, appliances, roofs, light fixtures, and anything else you want covered.
Also Read: Protect Your Home With A Home Warranty

Insurance – Get homeowners insurance, even if you are not required to by your loan or association. If you live in an earthquake, fire or flood zone, get insurance for those losses as well.

Check with the Federal Emergency Management Agency (FEMA) to see if you are located in a hazard zone.

Also Read: Buy Homeowners Insurance in California

Maintenance – Follow all the manufacturer’s maintenance requirements for all the major components of your house including, but not limited to HVAC and appliances.

Most components come with a manual, or the manufacturer can provide it for you. Following these easy tips can add many years on to the life of each system and keep your house running as efficiently as possible.

Your local hardware store can also be a great tool to help you with maintenance advice for your home.

Alarm System – Protect your home, personal property and family. Regardless of where you purchase a home, an alarm system can provide the piece of mind you need to enjoy and protect your investment.


 

WORK WITH EXPERIENCED PROFESSIONALS

Let CAPropertyFinder.com set you up with one of our experienced real estate brokers.

Real Estate Brokers – Working with a broker will team you up with an expert who can help you make decisions that are best for you in the long run. 

◦ Brokers can help you find the right home for you in the right area. 

◦ Brokers can research the MLS for comps for you and then give you advice on where to price your home or how much to offer on a new one.

◦ If you plan to purchase a foreclosure, short sale or REO, you should work with a broker who is experienced in distressed sales; they will typically know the lenders who control these properties.

Call us at 1-800-287-1808 or e-mail us on the website to speak with a recommended broker in your area.


For more information, advice, or help, please contact us via our website CAPropertyFinder.com or our toll-free number 1-800-287-1808.

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