Your Guide to Buying a Home in California

• California is an escrow state and has a process that is similar to other states that have requirements for the use of escrow agents.
• In California, the borrower’s funds and purchase contract are held by a neutral party. They are released when an escrow agent verifies that everyone has performed their role properly.
• When you are buying a home in California, the escrow company then notifies the selling agent when the title is recorded so the agent can give the keys to the buyer.

The Step-by-Step Process for Buying a Home in California

Phase 1: House Disclosures and Inspections

Once a buyer is in contract for buying a house in California, these are the steps that need to be completed for disclosures and inspections. In many cases, they can be completed at the same time as the steps in Phase 2.

1. First, an offer will be accepted by the seller, which will begin the transaction process, including the escrow process.
2. An earnest money deposit is placed with the seller’s real estate broker, an escrow company, or an attorney. When buying a home in California, the money is never given directly to the seller.
3. The buyer will then have the chance to review and sign off on any disclosures as needed. These disclosures will change depending on the property, but they often include flaws with the home, previous repairs, and possible hazards to the environment that may need to be addressed in the future. In many cases, a complete disclosure package is given to the buyer from the seller. This package will include known defects that are disclosed before the offer is accepted. A seller sometimes see this as beneficial, as buyers may include these facts into the contract price.
4. The buyer will now choose to perform inspections if they desire. This is usually agreed upon in the contract. The inspections must be completed by a certain day, which is called the “inspection contingency date.” The type of inspection will depend on the home, the contract, and the buyer, but they often include a pest inspection, roof and chimney inspection, a sewer inspection, and a general inspection conducted by a professional contractor.
5. The buyer will then assess the results of the inspections and could request repair work, credits, or a reduction in the sale price if flaws are discovered. When the buyer makes a request, sellers can agree to the buyer’s request, offer a compromised solution, or decline the request entirely. The buyer can then continue negotiations as needed or choose to end the contract at this point if they wish.
6. Eventually, the buyer will need to remove the inspection contingency by agreeing to an inspection response, which is signed by both sides. This should finalize any issues related to inspections and disclosures.

Phase 2: The Mortgage

Many people borrow money to purchase a home, and the mortgage process can seem stressful and complicated. However, it is actually a straightforward process, and when you are properly prepared, it will be smooth and simple. In most cases, the steps in Phase 2 can be completed at the same time as Phase 1, so feel free to begin once you are in contract with a seller.

1. The first step in this phase is for the buyer to submit a loan application. This will be done either directly or through a mortgage broker.
2. Within three business days, the lender will send the buyer a GFE, which stands for “Good Faith Estimate.” This is an explanation of the expected closing costs, but this number will likely deviate slightly from the final numbers.
3. The lender will then request that the borrower send a wide variety of financial information. This information will vary depending on the type of loan, the borrower, and the lender, but you can generally expect to need a few specific documents, including:
   – Bank statements from several months in the past. This should include all accounts that are owned by the borrower.
   – Several months’ worth of information regarding your debt load, including current loans, credit lines, and other financial liabilities. This can also include rent checks if you are currently renting a home.
   – Up to two years’ worth of tax returns. This will be released to the lender using an authorization form through the IRS.
   – Recent pay stubs and information from the borrower’s employer. This should include all employers, including full and part time work, as well as seasonal employment.
   – Any information that impacts your financial wellbeing. This can include, but is certainly not limited to, marriage licenses, divorce settlements, child support, bankruptcies, liens, and judgements. Basically, if it affects you personal finances, it needs to be documented for the lender.
   – Borrowers will need to explain any past credit inquiries, which impact credit scores and increase risk to lenders.
   – Verification and information on any significant deposits in the borrower’s bank accounts. A large gift can look like a personal loan, so you will need to have a gift letter from the donor. This gift letter should include a lot of information, including verification that the funds are in fact a gift and not a loan. Borrowers may also need itemized deposit slips. The specific amount that requires a deposit slip or gift letter will vary depending on the size of the gift compared to the borrower’s income.
   – Finally, the borrower will need to supply repeated and updated information for many of the above documents. Remember that as far as a lender is concerned, anything can happen between pre-approval and the payment of the loan. Even during the escrow process, many things can change. For this reason, they may ask that borrowers bring multiple information sources for the same information, such as income. Be sure to bring as much as possible so you speed the documentation and approval process. If there are any changes, you will need to provide this information as well.
4. Once all the right documentation has been provided, the lender will make a decision. Assuming it’s an approval, they will issue a commitment letter, which simply states their willingness to fund your loan once certain conditions are met. These conditions can include appraisals, which ensures the lender that their loan is supported by a quality investment. It may also include any material changes that may have been requested by the lender.
5. Any financing or loan contingencies will now be removed. This will be done by the buyer before the loan contingency date, which is noted in the contract for buying the home in California. The buyer may also ask for an extension to this date if they have yet to receive the loan commitment letter from the lender. The seller then has a set amount of time to respond, and they can choose to not give the extension if they wish.
6. At this point, an appraisal will be requested by the lender or mortgage broker. This will be done through a directory of appraisers, and while choosing a specific appraiser is not possible, agents and brokers can request a different appraiser. If the appraisal comes in lower than expected, the lender can decline approval unless a change is made to increase the value of the property. California generally has an appraisal contingency date; before this day, any issues regarding the appraisal must be completed and submitted to the lender.
7. When buying a home in California, homeowner’s insurance must be purchased. This is an important part of reducing risk to lenders, but some homeowners can actually avoid this step if insurance is already provided through an HOA or similar organization.

Remember, this entire process can be long and time consuming, and it usually requires a lot of preparation and research from the borrower. Because of this, it’s best to start preparing documents as early as possible. Even if you can’t get the documents in hand, you should at least figure out how to get them. Also, it’s best to maintain a consistent work history and credit profile during the mortgage-approval phase, so avoid changing jobs if possible and don’t take out new lines of credit or borrow money for new vehicles or other large purchases.

Phase 3: Closing the Deal

Compared to the other phases, closing the purchase deal in California is usually fast and simple, and it often can be completed in a few days. However, a week may be required in some cases. This is in sharp comparison to states that require an attorney review, which California does not.

1. In many cases, the title search is performed just before the closing, which will determine whether there are any liens or assessments against the title. Assuming the title is clear of any disputes, the procedure for closing can begin and title insurance will be prepared. The buyer can also request a title search before closing procedures, but there may be an additional fee. This may reveal information on the property that could be useful before the purchase.
2. The lender will then send the final loan documents to the escrow agent, which is required when buying a home in California.
3. The buyer now signs all the closing documents and the documents pertaining to the final loan.
4. At this point, the buyer will need to pay the remaining funds for the down payment and closing costs, which will be done through the escrow agent, closing agent, or representative from the title company. For efficiency, this can actually be done a few days in advance.
5. The deed will then be recorded with the right municipality, which is typically either a city or a county.
6. Congratulations are in order! The deal is now closed and the buyer will receive the keys to their new California home. Unless there are different indications on the contract, the buyer now has official ownership of their new property!

Downpayment Assistance in the State of California

If you need help with your downpayment, many organizations in California can help. Here are a few examples of state and local programs that may support your purchase.

Statewide Programs

Whether through the state government or non-profit organizations, there are a variety of downpayment assistance programs that are available throughout the entire state.

CalHFA
The California Housing Finance Agency, or “CalHFA,” offers a variety of programs, including the MyHome Assistance Program. Through CalHFA, borrowers can secure repayable or forgivable downpayment assistance.

Golden State Finance Authority
The GSFA is a public group that provides affordable-housing solutions in California. Their options include the “GSFA Platinum” and the “Open Door” program, which provides downpayment loans. 

Zero Down California
This program allows qualified borrowers to receive a 3.5% downpayment which can be combined with an FHA loan in the state of California. Available all throughout the state, this program allows buyers using an FHA loan to finance the entire purchase.

Local DPA Options: A Few Examples

Various cities and counties throughout California have local downpayment assistance programs. We may not be able to cover all of them, but some of the most common include:

Los Angeles County’s Affordable Homeownership Program
With almost 10 million residents, Los Angeles County is the largest county in the state. To help numerous buyers in this area, the Los Angeles County Development Authority (LACDA) has instituted the Affordable Homeownership Program. This financing is available as a secondary mortgage and the LACDA shares in a percentage of the equity gains.

San Diego County’s Downpayment and Closing Cost Assistance (DCCA) Program
San Diego is another major county that offers downpayment assistance. The Downpayment and Closing Cost Assistance program, or “DCCA,” helps buyers in this southern California county make a home purchase with the help of a low-interest loan that comes with deferred payments.

Common Requirements for California Downpayment Assistance

Each program will come with different standards, but here are a few of the most common requirements for using downpayment assistance programs in California.

Many programs have requirements for income. You often need to be a low- or moderate-income buyer to use these benefits. You may also need to be a first-time buyer, and almost all of the programs require that the purchase is an owner-occupied property, not an investment, vacation, or second home of any kind.

Some will also require that the property is a single-family home, but others will allow multiunit properties as long as you occupy one of the units.

Details will vary, so talk with an experienced lending professional for more information on DPA requirements in the state of California.

This document is not meant as legal advice. Laws are subject to change, so always speak with a qualified professional before making any decisions regarding mortgage transactions or real-estate purchases.

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