Home Loans California & Arizona

8 Factors to Consider When Buying a House in California

December 12th, 2015 11:28 AM by Nathan Rufty

When looking to buy a house in California consider this questions at the beginning of the home buying process. Looking to time the market when it comes values and rates is not a good idea. Waiting for both values and rates to come down will only frustrate you in the process of the home buying process.



Consider these questions when purchasing property in California.
  • What is my monthly budget I can afford in terms of a house payment
  • How much money do I need for the down payment, closing cost and upfront fees
  • Where do I want to buy in terms of location
  • Will this be a long term purchase or a short term investment 
  • Do I explore a fix or an adjustable interest rate
  • When I am ready to sell can I resell as easily as I purchased the property
  • What kind of property do I buy a house, duplex, Condo or a Townhouse
  • Do I want to buy house in an area that has a high property tax rate or HOA
These are just some of the questions you need to ask yourself when starting the process of your home buying process. These will be a factor at the very beginning that will determine your decision of owning a home here in California.

The most important step before making an offer on a house is to, get yourself pre-approved to buy a home. This will determine if you have to work on your income, credit or the down payment to be able to begin your house hunt. This process will ensure your loan is in place letting the sellers know you are ready to move forward with the process once your offer is excepted. 

Let's explore each of the 8 important factors when starting your home search that will determine when, how, what and where you buy.

What is my monthly budget I can afford in terms of a house payment:
If you are paying rent at the moment, then you know what your budget will allow for a house payment. You can adjust that budget up or down depending on other monthly debts you have such as auto, student, utilities, credit card debt, etc.

If you are a first time home buyer and living with family or friends, budget around 33% of your monthly income towards a house payment. Starting off with any kind of a higher monthly debt may be a shock because you are not used to it.

In both cases, sit with a loan officer, such as myself to review your income, where we can present you with options on payment. The payment will determine what the purchase amount will be based on what you are looking to put down on the house.

How much money do I need for the down payment, closing cost and upfront fees:
There are home loan programs that require no money for the down payment and others that require as little as 3% to 3.50% down of the sales price. Also, there will be fees involved when buying a house, such as lender, escrow, title and buyer['s pre-paid fees, as well as upfront out of pocket expenses. Click HERE to learn more about the fees in buying a house in California.

The funds to purchase a home can come from the buyer's own sourced funds, gift from a family member, the seller can contribute towards the cost as well or from a down payment assistance home loan program. There are ways to locate and source funds to buy a house, we will need to explore all available avenues to ensure there are funds to close escrow.

Where do I want to buy in terms of location:
You always here from industry professionals, Location-Location-Location. This is very true when starting your home search. This will come into play with job location, family friends, work, school, parks, hospitals, shopping and I think the biggest factor, resell. If this is not your permit residence where you will retire in, then think about resell.

Location is a key factor for every homebuyer, everyone wants to live in a good area and the houses for sell in those areas will be at premium, good when you buy and great when are ready to sell. You may not be able to budget for the good area, but owning property to sell or rent later is always a good investment because values will always go up and down (more up than down) and you will be paying the mortgage down, thus increasing the equity of the house for future sell-ability.

Location of the property can bring additional monthly fees such as HOA, higher property taxes and possibly flood insurance. This is something to consider as well.

Will this be a long term purchase or a short term investment:
Looking at a property for retirement or possibility renting one day is a good long term investment for additional income for renting or having the property paid off when ready o retire. 

Short term can be your first home before starting a family, job re-location or starting your real estate empire to buy and flip. 

Try and have a goal on the length of owing a house because this will determine the kind of financing and down payment you start with. I know we can not predict the future, but start the path towards homeownership because this history has the biggest return on investment. Yes there are ups and downs in real estate, but investing in safe real estate returns more than the stock market. You have to live somewhere and that somewhere should be something you own.

Do I explore a fix or an adjustable interest rate:
I believe in fix interest rates over an adjustable rate, rather you are looking for a short or long term investment, fix rates are the way to go. You can obtain (need to qualify) a shorter fix term with a 10, 15, 20, 25 year. Knowing what your monthly mortgage payment will be is less stress then having an adjustable rate.

The adjustable is also good if you know how to manage it and you know for sure that buying the property will be a short term investment. These are for seasoned homebuyers knowing the risk with adjustable rate mortgages.

Even though the adjustable rates are lower, I like the fix rates knowing that the principle and interest payment will remain the same throughout the term of the loan. Even adding more to the payment will be applied to the principle balance thus paying the loan off earlier and saving on the interest part of the balance. 

When I am ready to sell can I resell as easily as I purchased the property:
If the property is easy to find financing on than you should be ale to sell to another qualified buyer just as easy. Location of the property can also play a factor in re-selling, such as, each county will have loan and income limits when financing with traditional loan programs available through FHA, VA, USDA and Conforming.

Location can determine how you will be financing the purchase of the property. Is the property in an area that will limit traditional financing because of the county loan limit? This will hold home prices down because the vast majority of buyers may not have the means to buy a house over the county loan limit.

Also, look what is around the neighborhood, like what kind of commercial buildings are around or may be going up in the future, will there be additional growth in the area that will cause more traffic, etc.   

What kind of property do I buy a house, duplex, Condo or a Townhouse:
Property type will play a big factor in determining what to buy. Single family detached homes will be the easiest to finance as long as the property is lending and meets health, safety, soundness and security issues which goes for all property types. 

With a duplex purchase you may need to come in with more of a down payment which will be determined by what home loan program you decide to move forward with.

Condos with respect to the other 4 property types is the hardest to find financing because, not just the unit itself needs to be lending so does the whole entire complex. So you have a hard time finding financing for a condo purchase,t hen when you are ready to sell, the next buyer may have a difficult time as well. Not saying this can not be done, it certainly can, just may push you to a different home loan program to close the purchase.

A free standing detached Townhouse will be a great starter or retirement home because the maintenance of the exterior is handled by a property management company and this type of property is also easy to finance when detached.

Think about the property type as a factor when starting your home search, because this may push you towards a particular loan program over another.      

Do I want to buy house in an area that has a high property tax rate or HOA:
Looking in a new area may bring a higher property tax rate than an older area here in California and the reason is the additional Mello-Roos tax. With the added property tax fee and/or monthly HOA can adjust your budget to purchase a lower priced property.

Buying a property zoned as a PUD (Planned Unit Development), Condo or Townhouse will add the monthly HOA to the qualify factor in terms of payment and debt to income ratios.

Purchasing a new home verses an older may carry those additional higher property taxes that also will factored in the monthly mortgage payment and qualifying debt to income ratio which will adjust you buying power. 

So before making an offer on a property, let's explore these 8 factors before beginning your home search. Start your home buying process off on the right foot by falling these important steps HERE when qualify for a home loan. I welcome the opportunity to assist with your home buying process. Please call me direct at 909-503-5600 or email me at Nathan@NathanRufty.com. I look forward in hearing or meeting with you and discussing your goals of buying a house in California.

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