The Golden State has offered a warm paradise to its residents, even tempting visitors to make their stay permanent. Sunny skies, beautiful beaches, and a booming economy are wonderful benefits, but housing in

California

gets expensive quickly.

If you’re a first-time homebuyer—or if you’re new to the real estate market in California—it can certainly be intimidating to navigate the home buying process.

Don’t worry: licensed insurance broker and comparison app

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is here to answer your questions about buying a house in California! In this guide, we’ll go over the steps to buying a house and pay attention to the things that every homeowner in California needs to know.

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Figure out your finances

The first and vital step of buying a house in California is evaluating your finances. You’ll need to understand things like your credit score, your debt-to-income (DTI) ratio, and the fees and payments associated with home buying before you can go house hunting—much less make an offer or close on a home.

It’s tempting, but don’t open Zillow quite yet—start by sitting down with a calculator, your bank statements, and other relevant financial records to determine what kind of house you can afford in California.

Check your credit score

Check your credit score before doing anything else. Your credit score may be the most important number when you’re trying to buy a home.

Generally, you need to have a credit score of 620 or higher to purchase a house in California, especially if you plan on taking out a conventional mortgage on the house.

If you have a credit score below 620, you still have some options.

You can try to build your credit to qualify for a better mortgage plan. This might be your best option if you’re also saving up for the down payment. With a lower credit score, you can still qualify for a mortgage.

The Veterans Administration (VA) and Federal Housing Administration (FHA) offer mortgages for people with credit scores as low as 500 and 523, respectively. VA mortgages are only available for active service members and veterans.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio, or DTI, is another financial term you’ll need to be familiar with. You can calculate your DTI by adding up all of your monthly payments and dividing them by your total income before taxes. Payments that will contribute towards your DTI include:

Car payments

House payments or rent

Credit card payments

Child support or alimony

Student loan payments

You will have a hard time buying a house in California if your DTI is higher than 50%. If you want a conventional mortgage, you’ll want to shoot for a DTI at or below 36%.

Determine your down payment

Determining how big of a down payment you can make is a significant part of figuring out what kind of house you’ll be able to afford. It will depend, in part, on the kind of mortgage you’re expecting to get, as do most home-buying decisions. Conventional mortgages usually required at least 20% for a down payment.

If you can’t make the 20% down payment needed for a conventional mortgage, a more affordable option might be a Federal Housing Administration (FHA) loan or Veterans Administration (VA) home loan. Let’s take a look at the differences:

FHA loans are mortgages insured by the Federal Housing Administration for low- and moderate-income homebuyers, first-time homebuyers included.

VA home loans are mortgages insured by the Veterans Administration for active military members, veterans, and surviving spouses if they are eligible.

With an FHA mortgage, your down payment could be as low as 3.5% if you have a high enough credit score (typically around 580). You may be able to make no down payment at all if you qualify for a VA mortgage. VA loans can also provide low-interest rates and lower closing costs on a competitive basis.

Prepare for closing costs and other fees

You may have heard the phrase “closing costs” before, but how much should you prepare to pay right away in addition to your down payment?

Closing costs generally come out to around 3-6% of the home’s total value.

Zillow’s Home Value Index

shows that the average home price in California is $734,612—which means that closing costs could be as high as $44,076!

What does the total for closing costs include? Closing costs for your home will typically cover the following:

Home appraisal fee (required by most mortgage lenders)

Home inspection fee

Credit report fee

Mortgage origination fee

Mortgage insurance

Homeowners insurance

Earnest money (i.e., a good-faith deposit going towards your down payment)

Property taxes

Property taxes average about 0.73% in California, but the exact amount will vary from county to county. For example, Riverside and Kern County’s property tax rates are 0.97% and 1.01% respectively, but rates drop as low as 0.51% and 0.66% in Trinity and Santa Cruz Counties.

MORE: Checklist for first-time homebuyers

Key Takeaway Double check the property tax in the county you’re wanting to live in before beginning your house hunt.

Look for homeowners insurance

Homeowners insurance isn’t a one-time purchase included in your closing costs—it’s a significant expense you’ll need to renew, especially with a mortgage. In the U.S, the average price of homeowners insurance is $1,387 per year or $115 per month. In California, it can be pricier since you may need to buy flood or earthquake insurance to supplement your standard homeowners policy.

It might be tempting to snag the first deal you’re offered, but don’t commit to the first homeowners policy you see. You should compare quotes from at least three different insurance providers to find the lowest price (hint: your car insurance company can usually offer you low rates, especially if you bundle policies!).

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Jerry

can make it easier than ever to compare rates: just answer a few questions, sit back and relax, and let Jerry find quotes from up to 50 trusted insurance companies!

MORE: How much does flood insurance cost?

Key Takeaway To buy a house in California, figuring out your finances is a non-negotiable first step. Determine your credit score, DTI, and savings for both your down payment and closing costs before moving on to the next step.

Get preapproved for a mortgage

It’s not quite time to start looking for houses yet—the next step is getting prequalified for a mortgage. You’ll gain stronger financial footing when you go into negotiations since many sellers won’t even show you their property unless you show them your letter of preapproval.

Follow these steps to get preapproved for a mortgage:

Provide your Social Security number to your lender

Write a list of your employment history, assets, banking information, and debts

Fill out an application for a mortgage

Getting preapproved for a mortgage is a fairly straightforward process, but do not start it until you’re sure you’re ready to buy a house! Your lender will perform a hard credit check using the information you provide. They’ll also make sure you’re financially capable of paying the loan and verify your DTI ratio. The hard credit check can damage your credit score, and make it more difficult to get approved in the future if you apply for preapproval before you’re financially ready.

How to pick the right mortgage in California

When you pick a mortgage, your two main considerations are going to be mortgage term and interest rate. The most common mortgage term lengths are 15 years and 30 years.

The shorter mortgage term has higher monthly payments, but the interest rate can be as low as 2.5% or even lower. On the other hand, a longer mortgage term has lower monthly payments but the interest rate is higher (usually around 3.5%). Make sure to compare loan options from a few different lenders before making your decision.

Look for a house

Now you’re at the exciting part! You’ve evaluated your financial situation and got prequalified for a mortgage, so you’re ready to begin house hunting.

Pick your city or neighborhood

When you’re deciding on your next home, look for a city or town that meets your wants and needs relating to the three C’s: climate, cost of living, and culture. San Francisco, Los Angeles, and San Diego are still popular areas, but there are more affordable spots like Ridgecrest, Hanford, and Live Oak.

If your heart is set on one particular city, look over the housing market in different neighborhoods and decide on what’s important to you: do you want to live close to bars and other nightlife, or do you want a house in a good school zone? You should also look at local crime rates and the cost of

car insurance

in the area.

MORE:

California electric vehicle incentives

Buyer’s market vs. seller’s market

Want to shop smart in real estate? Knowing if you’re looking at a buyer’s or a seller’s market can help.

Supply outweighs demand in a buyer’s market, and you may be able to negotiate a lower price on the home.

If there are more hopeful buyers than houses available on the market, you are in a seller’s market.

Want a quick, easy way to figure out whether the area you’ve picked is a buyer’s market or a seller’s market? Check out recent home sales in the area to compare asking prices to final prices. Are the asking prices consistently lower than the final prices? If so, it’s a seller’s market.

Another good sign is time on the market: houses are sold quickly in a seller’s market but can linger for weeks or even months if you’re in a buyer’s market.

Remember: housing markets can shift quickly! Make sure to do your research when you begin house hunting.

Find a real estate agent

Going through the process of buying a house can feel like a full-time job—and for real estate professionals, it is! You aren’t required to hire a real estate agent to buy a house in California, but they can be extremely helpful and guide you through the process.

If you decide to work with an agent, look for someone with plenty of experience in the area you want to live in. It’s also important to find an agent who communicates clearly and promptly so you can trust them with finding your dream house.

Make an offer

You’ve found the house you’ve always wanted—time to make your offer! A real estate agent can assist in filling out the necessary paperwork and determine the best offer based on the current housing market. Do your homework well enough, and you should be ready to make the necessary payments to move forward as a new homeowner!

MORE: How to compare home insurance quotes

How to save on homeowners insurance

Homeowners insurance usually isn’t the first thing that comes to mind with buying a house, and it isn’t an exciting step. However, you’ll need to purchase a homeowners policy to protect your new home (and satisfy your mortgage lender).

You’re in luck when you have

Jerry

—shopping for insurance is quick and simple. Jerry can compare competitive rates from top-rated insurance companies in as little as 45 seconds, and you can bundle your home and auto policies to save on both!

“
Jerry
saved me over half of what I was paying, and I was able to stay with the same insurer. Thanks from Sacramento, CA!” —Elijah M.

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How much money do I need to buy a house in California?

The dollar amount you’ll need to buy a house will vary depending on the area, the size of your down payment, and the type of mortgage you qualify for. Average California homes are valued at around $734,612, so you will want to have around $168,960 in savings.

What credit score is needed to buy a house in California?

To buy a home, you want to have a credit score of at least 620. However, if your score is at least 500 you may qualify for a VA mortgage or FHA loan.

What is the best place to buy a house in California?

There isn’t one exact “best” place to buy a house in the Golden State. California has a variety of cultural centers, costs of living, weather patterns, and more—do some research on the different regions to decide what will be the best fit for you!

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