By, Lisa Roberts
Every day more and more renters are deciding to purchase a home and become homeowners. Whether it’s because of rising rent prices or because they want to build equity, everyone has their reason for deciding to move from renting to owning a home in California. Homeownership is a huge life decision, and it’s important to go into it boldly and armed with all the necessary information.
Many smaller choices need to be made before the time comes to purchase a home. Especially if you are a first-time buyer. For example, you need to decide whether you’re or a forever home. Let’s go through a list of the most important factors to consider and tasks to perform to be ready for homeownership in California.
Understand the full cost of owning a home in California
The first part of understanding the total cost of owning a home in California is breaking down the way your mortgage works. People (especially first-time buyers without experience) tend to only consider their principal and interest rate. However, there’s a bit more to it. After you take out a mortgage loan, you’ll be paying a PITI. This acronym stands for principal, interest, taxes, and insurance. Altogether these represent the full amount of your mortgage payments. Let’s break down what each of these payments entails:
1. Principal - This is the actual amount of money that you have borrowed. So, if you took out a loan for $100,000, your principal is $100,000. The principal is separated into smaller payments that make up parts of your full monthly mortgage;
2. Interest - This is the price of the service of borrowing money from your lender. The percentage of the interest rate is decided beginning of the loan term;
3. Taxes - This refers to property taxes enforced by local governments. They are calculated and paid annually. But you can break them up and include them in your monthly mortgage payment. Then your lender will hold the money until taxes are due;
4. Insurance - Homeowners insurance protects your home from misfortunes such as theft, fires, floods, etc. Additionally, you may have to pay private mortgage insurance. This protects the mortgage lender. It’s usually mandatory for people who paid less than 20% with their down payment.
Beyond the mortgage
The price of owning a home goes far beyond a monthly mortgage payment. There are also the costs of regular home maintenance. These usually represent around 1% of a person’s original home price annually. There are also closing costs and utility costs. Depending on your home and your habits, these can cost you between 2% and 5% of your home purchase price.
If you’re moving from far away, you also need to account for regional differences. For example, if you’re moving from Washington to California, you can probably expect a difference in utility costs and local property taxes.
Start saving up for a down payment
Paying your down payment is the first step of the move from renting to owning a home in California. It is part of your home’s total purchase price, which you pay right away at the closing. The rest is paid by your mortgage lender. In California, most mortgage lenders will require a 20% down payment. However, there are ways to lower this amount. For example, there are government-backed loans such as the VA and FHA loan.
Additionally, some mortgage lenders now allow down payments as low as 5%. While this might sound enticing at first glance, it does bring some serious risks. The first of which would be the fact that your mortgage payments and interest rate will be a lot higher. As we’ve already discussed, if your down payment is lower than 20%, you’ll also likely be required to pay private mortgage insurance.
Get in touch with a mortgage broker
Getting in touch with and arranging a meeting with a mortgage broker is an excellent idea for anyone who plans to move from renting to owning a home in California. Even if you don’t plan on buying a home right away, a mortgage broker can give you an accurate idea of what kind of loan is best suited for your situation. They can also give you some advice on how to save up while you’re still stuck with paying your rent.
Additionally, if you are ready to buy a home in California soon, the great idea is to talk to multiple mortgage brokers. You might find that some of them can offer better interest rates and loan types that are more suited to your situation. If you’re currently renting a home outside of California, you should also look for a mortgage broker who has experience with working with clients from afar. So, if you’re moving from renting a home in Washington to owning a home in California, you need a mortgage broker who is familiar with the process of closing a deal in such a situation.
Find a good real estate agent in California
Once you’ve got all of your finances in order, it’s time to find a good real estate agent and go house hunting. During the process, you will be highly dependent on your real estate agent, which is why it’s important to find someone with whom you can work well.
It’s important not to rush the process of choosing a real estate agent. It’s okay to shop around a bit and get multiple offers. The most important factor is that your real estate agent has to be ready to tailor the process to your individual needs. The needs of a person moving alone are different from the needs of or a couple planning to start a family. Additionally, you can look out for the following:
1. A history of positive online reviews
2. A high number of closed deals in the last year
3. Years of experience
4. Experience with working with clients in your price range
Choose a good location
In California, home prices vary widely between cities and even neighborhoods. That’s why it’s important to take your time and find a location that can offer you a great home in your price range. It’s also a good idea to spend some time researching home value trends. This should help you get a better understanding of how your home’s value could change over the years.
If you already live in California and are renting a home there, this can be fairly easy to do, especially if you plan on staying in the same city/neighborhood. But if you’re moving in from far away, this can be a bit trickier. Sticking to the previous example, if you’re currently renting a home in Washington, you have two options. You could get in touch with a real estate agent well in advance and have them help you out with this. Or you can utilize online resources to research all of this on your own.
This is a great place to remind you of another expense that comes with the move from renting to owning a home in California - moving expenses. Experts from advise you to spend some time researching and thinking of ways to save money during your moving process. For example, if you’re moving in batches, it may help to rent out a storage unit close to your new home.
As you can see, the move from renting to owning a home in California can be very intricate. And, without proper preparation, it can even be very difficult. However, if you spend enough time preparing, talking to professionals, and planning things out, the process itself can turn out to be a breeze. Remember to get creative with your process and personalize it to your situation. For example, if you’re while still paying rent, your method of saving up will be very different from the process of a dual-income family that plans to expand. Take your time, and remember to destress every once in a while. Becoming a homeowner is the beginning of a wonderful new chapter in your life.
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