First Home California

Buying a home is likely the largest financial investment you'll make. Before you start looking, take the time to consider your priorities.

• Consider what type of house will serve your needs (i.e., single family home, condo, duplex, move-in ready or fixer upper, etc.)
• Consider what neighborhoods you'd like to live in
• Find out if housing inventory is rising, falling, or holding steady
• Find out the average length of time houses remain on the market in the area you want to buy
• Create a list of "must-haves" and "nice-to-haves" for yourself and your real estate agent
• Talk with trusted friends or family members who have purchased a home about their experience

Before looking for a home, be realistic about what you can afford and how much financing you can secure. The cost to purchase a home includes not only the monthly mortgage payments, but the down payment, closing costs, insurance, taxes, repairs, upgrades (including energy efficiency upgrades, fire hardening, and drought tolerant landscaping), and other expenses. Also, keep in mind ongoing costs, like utilities, taxes, homeowner association dues, and maintenance.

Typically, you'll need 5% to 20% of the purchase price for a down payment, depending on your financing arrangements, and an additional 3% to 7% for closing costs. State and federal programs offer assistance with these costs for qualified buyers See "Applying for a Home Loan" and "Financial Assistance Programs".

Focus on the monthly payment you can afford in the context of other expenses, not the maximum loan amount you may qualify for. Just because you qualify for a loan amount doesn't mean you need to spend it. Buying more home than you can afford can put you at higher risk of foreclosure if your financial situation changes.

Compare lender rates and fees and consider getting pre-approved to make the buying process smoother. See "Applying for a Home Loan" and "Financial Assistance Programs".
Lenders will look at your credit score/history, including the number of open accounts, payment history, and type of debt.

If you're receiving a financial gift or assistance from a friend, a family member, or a charity, have a clear understanding about the amount, the terms, and when you'll receive the money. Lenders will verify the transfer of funds through bank statements and a signed gift letter. Some lenders offer first-time homebuyer discounted rates and there are government programs to assist qualified first-time homebuyers. Be sure to understand the difference between a fixed rate mortgage and an adjustable rate mortgage. Fixed rate mortgages are set at a consistent interest rate over the period of the loan (typically 15 or 30 years). An adjustable rate mortgage offers a lower initial interest rate that later fluctuates with current market conditions, meaning that your mortgage payment will increase when interest rates increase or decrease when interest rates decrease. The specific terms for each type of mortgage varies, so take the time to understand the details.

Be sure to understand the difference between a lender and a mortgage broker. A lender typically is the person or entity who loans money, such as banks, mortgage companies, credit unions, or savings and loans. A licensed mortgage broker is someone who arranges loan(s) from one or more lenders and earns a commission for their services.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, age, or other protected characteristic there are steps you can take - file a report with the California Civil Rights Department, the Consumer Financial Protection Bureau, or the U.S. Department of Housing and Urban Development (HUD).

Lenders must be licensed by either the California Department of Financial Protection and Innovation (866-275-2677) or as a real estate broker with a mortgage loan originator endorsement issued by the Department of Real Estate (877) 373-4542. Always check the license status and history

Invest some time finding the right real estate agent and always check their license status on the DRE website or by calling DRE (877-373-4542). Keep in mind that this is a business relationship, not a personal one. See "Finding a Real Estate Agent."

When looking for a home, keep in mind your list of priorities and what you can afford. Make sure your agent explains any homeowner association dues and special taxes and assessments, including solar systems (if applicable). If a home you're interested in already has a solar system, ask your real estate agent about the financial arrangement you'd take on as the new owner. Buying a home is both an emotional and financial decision, and an emotional response can lead to poor decision making and, often, paying more than you can afford.

Work with your real estate agent to decide what you want to offer for the home. While your offer does not need to include any contingencies, any contingencies must be part of the offer. For example, needing to qualify for a loan or selling a house, repairs you want the seller to complete before escrow, pest and home inspections, and timeframes for any or all of these activities. If your offer is accepted and the contract becomes binding, you may lose your deposit if you want to cancel the deal.

Read the offer before you sign it and ask questions if there's something you don't understand. Do not sign anything with blank spaces to be filled-in later and do not pay cash for the deposit or down payment

This is an opportunity to better evaluate the home's condition and value before officially purchasing it. Unless you're extremely knowledgeable, you should hire professionals to check the electrical, plumbing, HVAC, roof, foundation, septic system (if one), solar system (if one), and structural integrity of the home. Include home inspection as part of the contingencies in your offer. If repairs are required, they can then be negotiated with the seller.

You should also consider a termite/pest inspection. While most lenders require pest inspections, it's a good idea for all buyers to have this inspection done.

A licensed appraiser hired by your lender examines the house to determine its value based on comparable homes. You can check an appraiser's license with the California Bureau of Real Estate Appraisers.

You are legally entitled to a number of disclosures during the course of your purchase, including the "Transfer Disclosure Statement" and the "Agency Relationship Disclosure." You will also receive documents like a "Preliminary Title Report." Depending on the particular circumstances of your purchase, you may also be entitled to "Financing Disclosures" if getting a loan, and a "Public Report" if buying in a new subdivision

• Transfer Disclosure Statement - Completed by the seller, it covers the physical condition of the property and any potential hazards or defects. The buyer's real estate agent is also responsible for conducting a visual inspection of the property and disclosing any defects readily observed. This document also discloses any special taxes, assessments, and other factors that may affect the value or desirability of the home.
• Agency Relationship Disclosure - Your real estate agent must provide you a written disclosure stating who they legally represent in the transaction (i.e., exclusively the buyer, exclusively the seller, or both as a dual agent.
• Preliminary Title Report - Includes a search done by a title insurance company that identifies the ownership history of the property and any liens or encumbrances.
• Financing Disclosure - Various financing disclosures are required that include important information about your loan.
  • Loan Estimate - Provides information about the terms and conditions of your loan, including the amount financed, the finance charge, the annual percentage rate, and the estimated closing costs.
  • Closing Disclosure - Provides details about financial disbursements and closing costs.
• Public Report - All common interest facilities with homeowner association dues must have a public report available prior to offering homes for sale in standard subdivisions located outside city limits. The report includes information about utilities, water, roads, soil, geologic conditions, title, zoning, use restrictions, hazards, and the financial arrangements to complete the subdivision.

Escrow typically begins once the buyer and seller have agreed to the terms of a sale and is closed when the purchase is complete. The seller generally opens escrow where a neutral third party, the escrow officer, holds things of value (i.e., documents or funds) in a real estate transaction, though a buyer can also open escrow.

In Southern California, escrow is most often performed by an independent company licensed by the Department of Financial Protection and Innovation. In Northern California, escrow is most often performed by a title insurance company licensed by the Department of Insurance. A DRE-licensed broker can also perform escrow services, but only when they are acting as an agent in the sale.

Escrow ensures that all conditions of the contract have been met before funds and/or documents are transferred and prepares the final closing statement, which lists all the credits and debits associated with the purchase.

Surviving the Escrow Process in California

Before you close, you and your real estate agent should perform a final walk through of the home. On the day you close, you'll meet with your agent and a representative from the escrow or title insurance company to review paperwork (final loan application; deed transfer; etc.). The title company will have conducted a search to identify the ownership history of the property and any liens or encumbrances. Be sure to read and understand all the documents before signing and ask questions if you're unsure what something means. You'll also need to pay closing costs.

Closing costs generally include:

• Prepaid costs: ongoing costs of homeownership, such as property taxes and homeowner's insurance
• Title and escrow charges for title insurance company services, such as title searches and title insurance
• Lender fees: mortgage company fees to originate and underwrite loan
• Other costs might include pest inspections fees, disaster certification fees, or appraisal fees
• The escrow or title insurance company will collect the total amount you owe for various services and pay each party on your behalf. When the title is issued and escrow closes, the deed should be recorded at the county recorder's office (typically in 1-3 days).

Keep physical copies of your mortgage statements, property deed, closing disclosure, and other relevant documents in a locked, fireproof cabinet and let others listed on your loan know where they are and how to access them in case of emergency

If your financial situation changes and you have trouble paying your mortgage, contact your lender immediately to discuss a loan modification or forbearance. California offers a mortgage relief program and you can also talk with a HUD-approved counselor to learn about other options. You should also be wary of potential scams that target financially distressed homeowners. Many (but not all) of these scams require you to pay a fee in advance of any services being performed. Please note that advance fees are prohibited in California, unless approved in writing by the Department of Real Estate.

• Do ask trusted people for recommendations, especially other first-time homebuyers
• Do check the license status of the agent on the DRE website or by calling DRE (877-373-4542)
• Do ask to see the agent's real estate license and a photo ID (a business card is not enough)
• Do interview multiple real estate agents, preferably in person at their office
• Do ask for past client references
• Do ask about any areas of specialization and ask for proof
• Do ask about any professional affiliations
• Do consider what is most important to you as a buyer (i.e., understanding the details of the process or leaving that to the agent and simply making the purchase) and make sure the real estate agent also works that way
• Don't rely on an Internet searc
• Don't select someone unfamiliar with the area where you want to buy

• What experience do you have working with first-time homebuyers?
• What experience do you have working in the area where I want to buy?
• What experience do you have working with buyers in my price range?
• What experience do you have completing a similar type of transaction to the one I'm interested in?
• Have you previously worked with a lender and title insurance company in this area?
• What parts of the transaction are negotiable and which are not?
• What are the advantages and disadvantages of working with various lenders?

A real estate agent should locate and show you homes that meet your needs and are in your price range, as well as assist in negotiating the entire purchase process, including making an offer, negotiating with the seller's agent, and explaining the disclosures and paperwork. Your agent must also provide you a copy of the purchase agreement and all documents/disclosures. Most real estate agents receive a commission, paid from the seller's proceeds.

• Confirm the license status is current and not expired, revoked, surrendered, or licensed NBA
• If the agent is a salesperson, confirm there is a responsible broker listed whom they work for
• If a licensed corporation, confirm there is a designated officer
• If an "H," "R," or "D&R" appears in the public comment section of the license record, call DRE for any public information related to disciplinary action (877-373-4542)

• What is the interest rate?
• Is the interest rate fixed?
• What are the terms of the loan?
• Are there any mortgage points to pay in order to get the interest rate?
• What is the monthly payment for the principal and the interest?
• How much are the property taxes and insurance?
• What happens if interest rates change during the loan process?
• Is the broker paying the lender a rebate?
• Is there a prepayment penalty?
• Is there a balloon payment? If so, how much is it and when is it due?
• Are there any up-front fees? If so, are they refundable?
• How long does loan approval take?
• How much money will I need at closing?
• Will my loan payments include insurance and property tax payments?
• If the loan is not approved, is there a cancellation charge?

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Initially provides a lower interest rate than a fixed rate mortgage that then changes with current market conditions, meaning that the mortgage payment will increase when interest rates increase and decrease when interest rates decrease. Set by an index plus a margin - the index fluctuates with current market conditions; the margin is a fixed amount that is then added to the index to determine the interest rate. A standard adjustable rate mortgage begins to adjust almost immediately after funding while an intermediate adjustable rate mortgage doesn't until for several months to several years.

A breakdown of the exact amount of each mortgage payment applied to the loan principal and to the interest.

A licensed professional provides a home's market value based on comparable properties in the area.

Appraisers in California must be licensed by the California Bureau of Real Estate Appraisers.

Generally the final payment of a debt that is significantly larger than the other installment payments.

The basic rules establishing the rights and obligations of property owners within a subdivision.

Closing costs include a number of expenses that must be paid to finalize the home purchase. These generally include:

• Prepaid costs: ongoing costs of homeownership, such as property taxes and homeowner's insurance
• Title and escrow charges for title insurance company services, such as title searches and title insurance
• Lender fees: mortgage company fees to originate and underwrite loan
• Other costs might include pest inspections fees, disaster certification fees, or appraisal fees

A fee paid to real estate agents for their services to buyers and sellers. Typically, commission rates, which are negotiable, are between 4%-6% of the total purchase price and split between the buyer's agent and the seller's agent.

Commissions are paid at closing, usually by the seller, though that cost is generally factored into the price of the home.

Also called a "homebuyer's rebate," a rebate of up to 1% of the sale price that comes from the commission of the buyer's agent.

A homebuyer's rebate is allowed in California and is worth asking about (on a $300,000 home, it is $3,000).

A clause in a purchase agreement specifying that certain conditions must be met for it to be legally binding. Commonly, this will include passing a home inspection. If the condition is not met, the contract can be voided.

A number that represents a person's creditworthiness, used to determine the likelihood that they will pay their debts.

There are three major credit reporting agencies (Equifax, Experian, and TransUnion), likely to have a different score for someone because each have their own process. There is generally a fee to see your credit score, but you can view it once a year at no charge.

Credit scores are affected by: payment history; amount owed; length of credit history; mix of credit; and new credit applications. You can establish credit initially with bank accounts, employment history, residence history, and utility bills.

First part of the home's purchase price, which is paid at closing. The mortgage lender will pay the remaining balance.

Typically, down payments are 20% of the purchase price. However, government-backed loans often allow lower down payments (0% to 3.5% of the purchase price), and some conventional loans allow for lower down payments. The median down payment for first-time homebuyers is 6%.

A down payment of less than 20% likely means you'll need private mortgage insurance, will pay more interest over the life of the mortgage, and will likely have higher monthly payments

A dual agent works for both the buyer and the seller and owes fiduciary duties to both the buyer and seller. This is allowed in California only if both the buyer and seller are aware of and agree in writing to the arrangement.

Because of the inherent conflict related to price that dual agency presents, there are specific limits on dual agents. A dual agent "may not disclose to the buyer that the seller is willing to sell the property at a price less than the listing price, without the express written consent of the seller." And, a dual agent may not "disclose to the seller that the buyer is willing to pay a price greater than the offering price, without the express written consent of the buyer." However, this provision does not change in any way "the duty or responsibility of a dual agent to any principal with respect to confidential information other than price" (Civil Code section 2079.21).

The difference between the value of your home and how much you still owe on the mortgage.

A legal arrangement when a third party temporarily holds money or property until a particular condition has been met, such as the fulfillment of a purchase agreement. Generally involves the buyer's good faith deposit and can also be used to hold a homeowner's funds for property taxes and homeowner's insurance.

An obligation a real estate agent owes to their client, which includes loyalty, confidentiality, the exercise of utmost care, and providing and explaining disclosure documents and other paperwork so their client can make an informed decision.

Someone who has not previously purchased a residence. The legal definition for financing purposes is more detailed.

According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who meets any of the following conditions:

• An individual who has not owned a principal residence for three years. If you've owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
• A single parent who has only owned a home with a former spouse while married.
• A displaced homemaker who has only owned a home with a spouse.
• An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
• An individual who has only owned a property that was not in compliance with state, local, or model building codes—and that cannot be brought into compliance for less than the cost of constructing a permanent structure.

A loan set at the same interest rate over the period of the loan - typically 15 or 30 years.

A process that begins when a borrower fails to make their mortgage payments. When a home is foreclosed, the lender typically repossesses and attempts to sell the house. This happens because mortgage loans are secured by real estate, meaning your home is used as collateral.

If your financial situation changes and you have trouble paying your mortgage, contact your lender immediately to discuss a loan modification or forbearance. California offers a mortgage relief program and you can also talk with a HUD-approved counselor to learn about other options.

Also called an "earnest money deposit," typically 1%-3% of the total home price.

An earnest money deposit signals to a seller that you're serious about the offer and goes toward the down payment. The buyer typically pays the deposit to escrow at the time they enter into the purchase agreement. It often includes a home inspection contingency, which allows you to back out of the offer and not lose the deposit if you find issues with the home. However, if you back out of the offer for a reason not listed in your offer letter you'll lose the earnest money deposit.

Maintains common areas of certain housing developments and involves a monthly fee from homeowners.

A home inspector informs the buyer about specific problems with the property, the resolution of which can be negotiated with the seller.

When the borrower pays only interest during the term of the loan and then pays the full principal amount in a lump sum at the end of the loan term.

A home loan made in addition to the primary mortgage. Junior mortgages, typically offered by a different lender than the primary mortgage, often carry higher interest rates and lower loan amounts, and may be subject to additional restrictions and limitations.

Typically, a bank, mortgage company, credit union, or savings and loan that lends a buyer money to purchase a home.

A licensed professional, generally independent of a specific lender, who arranges loans from various sources and earns commission for their services.

A tax in special districts established by local governments assessed against the land, not the value of the property as property taxes do, to fund local infrastructure. Real estate agents must disclose that a home is in a Mello-Roos Community Facilities District.

A loan secured by real property and paid in installments over a set period of time.

The monthly payment on the loan to purchase the property.

Mortgage payments are generally due at the beginning of the month and most lenders assess late fees on the 15th of the month. A mortgage payment usually includes the principal on the loan; interest on the loan; and may include taxes and insurance (homeowner's and/or mortgage).

Fees charged by the lender for services and/or a lower interest rate.

Generally, one mortgage point is equal to 1% of the loan amount (i.e., $1,000 on a $100,000 mortgage). This is useful information when negotiating the terms and interest rate of your mortgage.

A letter written by a lender that states they are tentatively willing to lend you up to a certain amount of money to purchase a home.

A pre-approval letter is based on your financial information and documents (i.e., W-2s, bank statements, credit score). Most sellers will require this to show your seriousness. However, securing a pre-approval letter does not mean you need to decide on a lender. It's important to compare rates, fees, loan terms, and preapproval amounts from several lenders. It is not an official offer to lend you money.

Once you're pre-approved, make sure your financial situation doesn't change (if your credit score drops that can be a problem when closing) - avoid changing jobs, opening new credit accounts or making large purchases, don't close any accounts that have been open for a long time or transfer balances, and make all credit card payments on time. Lenders will run a credit check as part of the pre-approval process and again before you close on the house.

A provision in the loan agreement to pay an additional fee if you pay off all or part of your mortgage early.

An estimate of the amount of home loan you can get.

A pre-qualification letter is based on an informal evaluation of your income and other information, and can be from a lender, mortgage broker, or mortgage loan originator. It provides you an idea of the monthly payments (including principal, interest, taxes, and insurance), down payment requirements, and loan terms. A pre-qualification letter is different from a pre-approval letter. It is not an official offer to lend you money.

A legal document that transfers title to real property from one person to another.

Annual state and local levies based on the assessed value of your home. Property taxes are paid twice a year either directly to the county or through your monthly mortgage payments.

Required insurance if down payment is less than 20%; also required for some government financial assistance programs.

Conventional loans require private mortgage insurance until the loan balance reaches 80% of the purchase price; the requirements differ for various government financial assistance programs. Typically, PMI is added to the monthly mortgage payment and costs around 1% of the mortgage balance annually, though rates vary depending on your down payment amount and credit score.

In addition a regular property tax bill, properties subject to Proposition 13 reappraisals may result in a one-time additional tax bill at the time of purchase separate from the annual property tax bill.

• CalFHA
• CalVet
• Golden State Finance Authority
  • Platinum Program
  • OpenDoors Program
• Local Assistance

• California Bureau of Real Estate Appraisers.
• California Civil Rights Department
• California Contractors State License Board
• California Department of Financial Protection and Innovation
• California Department of Housing and Community Development
• California Department of Insurance
• California Structural Pest Control Board
• Department of Real Estate Publications

• Federal Housing Administration
• U.S. Department of Agriculture
• Veterans Loan

• Housing and Urban Development—"Buying a Home"
• HUD-Approved Counseling Services
• Homebuying programs by city
• Homebuying programs by county
• Consumer Financial Protection Bureau Home Loan Took Kit

• California Civil Rights Department
• Consumer Financial Protection Bureau
• US Department of Housing and Urban Development (HUD)

• Fannie Mae
• Freddie Mac
• Free Credit Check (Annual)
• Mortgage Relief Program