How to Buy a House in California

How to Buy a House in California

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How to Buy a House in California

; ; and

, 17th Edition

Strategies that work in California's unique market

Buy a home in California for the best price possible with this all-in-one guide.  How to Buy a House in California will help you make informed, practical decisions that could save you thousands of dollars.  You'll learn how to:

  • figure out how much your dream home is really worth.
  • get the most up-to-date information on mortgage options and rates
  • make a competitive offer

Product Details

Looking for a house in the Golden State? This bestselling book, written specifically for California, will show you how to get a house you can afford and will enjoy living in for many years.

You’ll save time and money by learning how to:

  • choose a house and neighborhood you'll love
  • select and manage a knowledgeable, hard-working agent
  • qualify for the best mortgage
  • figure out how much down payment you can afford
  • make an offer and negotiate a good deal
  • compete in multiple-bid situations
  • inspect a house for problems and hazards
  • buy and sell houses simultaneously, and
  • get through escrow successfully.

This 17th edition is completely updated  to coer dealing with limited housing supply and understanding how recent tax code changes impact home affordability.

Packed with checklists and financial information, How to Buy a House in California will guide you step-by-step through the unique challenges of buying a home in California.

Check out Nolo's list of California products for your other legal tasks. Not a California resident? Check out Nolo's Essential Guide to Buying Your First Home for information on buying a home in your state.

 

“A valuable resource for California homebuyers and real estate professionals.”  - San Francisco Chronicle

“The most complete book for California homebuyers.”  - The Los Angeles Times

“Brimming with information on buying a house in California.” - Oakland Tribune

ISBN
9781413327137
Number of Pages
392
Included Forms

  • Ideal House Profile
  • House Priorities Worksheet
  • House Comparison Worksheet
  • Family Financial Statement
  • Directions for Completing the Family Financial Statement

About the Author

  • George Devine

    The late George Devine was a licensed real estate broker and a widely respected educator in the real estate field. He obtained a B.A. from the University of San Francisco, and an M.A. from Marquette University, and pursued additional studies at San Francisco State University, Seton Hall University, Fordham University, New York University, the University of California at Berkeley, and other academic institutions. Before his death in 2015, he taught real estate at the McLaren School of Business at the University of San Francisco, where he was named the Outstanding Adjunct Professor. For several years, George wrote the popular "Real Estate Handbook" column in the weekly Real Estate Guide section of the San Francisco Progress. He authored For Sale By Owner in California and co-authored How to Buy a House in California.

  • Ira Serkes

    Ira Serkes is a local Realtor with RE/MAX Real Estate (www.berkeleyhomes.com) and a Certified Residential Specialist. He and his wife, Carol, specialize in helping home buyers and sellers throughout the east bay. He is a founding member of The Institute for Luxury Home Marketing and author of Nolo's How to Buy a House in California and Get the Best Deal When Selling Your Home -- San Francisco Bay Area Edition from Gabriel Publications. Serkes is also a graduate of Realtors Institute (GRI), a Certified Internet Real Estate Professional (e-Pro), a Seniors Real Estate Specialist (SRES) and one of only 4,000 U.S. an Accredited Buyer Representatives (ABR).

  • Ralph Warner

    Ralph "Jake" Warner, a pioneer of the do-it-yourself law movement, founded Nolo with Ed Sherman in 1971. Nolo began publishing do-it-yourself law books written by Jake and his colleagues after numerous publishers rejected them. When personal computers came along, he added software to many Nolo books. When the Internet arrived, he championed the move online, where Nolo published huge amounts of free legal information.

    In addition to running Nolo for much of its first 40 years, Warner was an active editor and author. He wrote many books, including Retire Happy: What You Can Do Now to Guarantee a Great Retirement and Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down & Move On.

    Warner holds a law degree from Boalt Hall School of Law at the University of California at Berkeley and an undergraduate degree in history from Princeton.

Table of Contents

Your Legal Companion to Buying a Home in California

1. Describe Your Dream Home

  • You Know the House You Want to Buy
  • Don’t Be Talked Into Buying the Wrong House
  • Identify Your Ideal House Profile
  • Create a House Priorities Worksheet
  • Prepare a House Comparison Worksheet

2. How Much House Can You Afford?

  • The Basics of Determining Housing Affordability
  • Prepare a Family Financial Statement
  • How Much Down Payment Will You Make?
  • Estimate the Mortgage Interest Rate You’ll Likely Pay
  • Calculate How Much House You Can Afford
  • Tips on Improving Your Financial Profile
  • Get Loan Preapproval

3. Narrowing the Affordability Gap: How to Afford Buying a House

  • Why California Houses Are Expensive
  • Rent and Wait?
  • Fix Up the House You Already Own
  • Strategies for Buying an Affordable House

4. Raising Money for Your Down Payment

  • Assisted No and Low Down Payment Plans
  • Five and Ten Percent Down Payment Mortgages
  • Will You Have to Buy Private Mortgage Insurance?
  • How Much Should Your Down Payment Be?
  • Using Equity in an Existing House as a Down Payment on a New One
  • Using a Gift to Help With the Down Payment
  • Borrowing Down Payment Money From a Relative or Friend
  • Is It a Gift or a Loan? Sometimes It Pays to Be Vague
  • Borrowing From Your 401(k) Plan
  • Tapping Into Your IRA
  • Borrow Against Stocks and Bonds

5. Working With Real Estate Professionals

  • Great Things About Working With a Real Estate Professional
  • Is Your Real Estate Agent Really Working For You
  • Hire an Agent by the Hour
  • Finding a Good Agent
  • How Not to Find an Agent
  • Getting Rid of a Broker or an Agent You Don’t Like

6. How to Find a House

  • The Best Time to Look for Houses
  • Organizing Your House Search
  • Where to Look for Houses
  • Use an Agent With Good Technical Skills
  • Enlist the Help of Personal Contacts
  • Finding a House When You’re New to an Area
  • Finding a Newly Built House

7. New Houses, Developments, and Condominiums

  • Pitfalls and Pluses of Buying a New House
  • Choose the Developer, Then the House
  • Using a Real Estate Agent or Broker
  • Financing a New House
  • Optional Add-Ons and Upgrades
  • Choosing Your Lot
  • Restrictions on the Use of Your Property: CC&Rs
  • Dealing With Delays
  • Inspect the House Before Closing
  • Guarantees and Warranties

8. Financing Your House: An Overview

  • How Mortgage Lenders Think
  • Who Lends Mortgage Money?
  • Standardized Loans: Fannie Mae, Freddie Mac, and the Secondary Mortgage Market
  • Mortgage Types
  • Comparing Fixed Rate and Adjustable Rate Mortgages
  • The Cost of Getting a Loan
  • Which Mortgage Is Best for You?

9. Fixed Rate Mortgages

  • Should You Choose a Fixed Rate Mortgage If You Can Afford One?
  • Not All Fixed Rate Mortgages Are the Same: Down Payments, Points, Interest Rates, and Other Variables
  • Mortgage Lengths and Payment Schedules

10. Adjustable Rate Mortgages

  • When Should You Finance With an ARM?
  • Loan and Payment Caps
  • ARM Indexes and Margins
  • Assumability
  • Hybrid Adjustable Rate Mortgage
  • Summing Up—What Good ARMs Look Like

11. Government-Assisted Loans

  • Veterans Affairs Loans
  • Federal Housing Administration Financing
  • California Housing Finance Agency Programs
  • CalVet Loans
  • Local Down Payment Assistance (DAP) Programs

12. Private Mortgages

  • Advantages of Private Mortgages
  • Get a Loan From Friends or Relatives
  • Shared Equity Transactions
  • Second Mortgages—Financing by Sellers
  • Second Mortgages—Financing by Private Parties Other Than the Seller

13. Obtaining a Mortgage

  • Gather Information on Mortgage Rates and Fees
  • Researching Mortgages Online
  • Work With a Mortgage Broker
  • Interview Lenders
  • Credit and Income Preapproval
  • Get Your House Appraised

14. Buying a House When You Already Own One

  • Check the Housing Market Carefully
  • How to Arrange the Transition Between Two Houses
  • Tax Breaks for Selling Your Home

15. What Will You Offer?

  • How a Contract Is Formed
  • Decide What You Will Offer
  • What Is the Advertised Price?
  • How Much Can You Afford?
  • What Are Prices of Comparable Houses?
  • Is the Local Real Estate Market Hot or Cold?
  • Is the House Itself Hot or Cold?
  • What Are the Seller’s Needs?
  • Is the House Uniquely Valuable to You?
  • How Much Are You Willing to Pay?
  • Making the Final Price Decision
  • Other Ways to Make Your Offer Attractive

16. Putting Your Offer in Writing

  • What Makes an Offer Legally Valid
  • How Offers and Counteroffers Are Made
  • What Your Purchase Agreement Should Cover

17. Presenting Your Offer and Negotiating

  • Notify the Seller of Your Offer
  • Present Your Offer
  • The Seller’s Response to Your Offer
  • Negotiate by Counteroffers
  • An Offer Is Accepted—A Contract Is Formed
  • Revoking an Offer or Counteroffer
  • Making a Backup Offer

18. After the Contract Is Signed: Escrow, Contingencies, and Insurance

  • Open Escrow
  • Remove Contingencies
  • Obtain Homeowners' Insurance
  • Obtain Title Report and Title Insurance
  • Conduct Final Physical Inspection of Property
  • Closing Escrow

19. Check Out a House’s Condition

  • Evolution of California's Disclosure Requirements
  • Real Estate Transfer Disclosure Statement
  • Natural Hazard Disclosure Statement
  • Earthquake and Seismic Disclosures
  • Environmental Hazards
  • Lead
  • Disclosure of Deaths
  • Disclosure of Military Ordnance
  • Local Disclosures
  • Inspecting the Property Yourself
  • Arranging Professional Inspections
  • Are the Repairs Really Needed?
  • Ask for a Home Warranty

20. Legal Ownership: How to Take Title

  • One Unmarried Person
  • Two or More Unmarried People
  • Couple or Domestic Partners Owning Together
  • Married Person Owning Alone
  • Partnership
  • Avoiding Having the Property Go Through Probate

21. If Something Goes Wrong During Escrow

  • The Seller Backs Out
  • The Seller Refuses to Move Out
  • You Back Out
  • The Seller Dies
  • You Discover a Defect in the Property
  • The House Is Destroyed by Natural Disaster (Fire, Earthquake, Flood)
  • House-Hungry Martians Take Possession of the House
  • Finding a Lawyer

Appendix: Using the Downloadable Forms

  • Editing RTFs
  • List of Forms

Index

Sample Chapter

Chapter 1: Describe Your Dream Home

You Know the House You Want to Buy

We’re going to assume you already have a pretty good idea of the type of house you want, whether it’s a rural Victorian or a new townhouse in a major city. But let’s take a closer look at how you’ll choose the actual house.

SKIP AHEAD
Already found the house you want and mainly interested in the ins and outs of financing? Skip ahead to Chapter 2, “How Much House Can You Afford?”

Don’t Be Talked Into Buying the Wrong House

Many California buyers face an affordability gap between the house they’d like to buy and the one they can afford. “California has been a strong seller’s market for about a decade,” says Ira Serkes. Without an organized house-buying approach, you might be talked into compromising on the wrong house by friends, relatives, a real estate agent, or even yourself.

Tips on Searching New Places

Perhaps you’ve heard it said that choosing a house’s location wisely is as important as picking a good house. In a state the size of California, you have no lack of locations to choose from. Chapter 5 discusses working with a local real estate agent to get essential information on neighborhoods.

But there’s still no substitute for your own legwork. Chat with friends and colleagues, walk and drive around neighbor­hoods, talk to local residents, read local newspapers, check the library’s community resources files, visit the local planning department, and do whatever else will help you get a ­better sense of a neighborhood or city.

 

Here is our method to ensure that you buy a house you’ll enjoy living in:

  • Firmly establish your priorities before looking at houses.
  • Insist that any house you offer to buy meets at least your most important priorities (even if you must compromise in other areas).

In the following sections, we help you consider a range of house features, establish your priorities, and compare potential houses.

Identify Your Ideal House Profile

To cope with all the variables, it’s essential to establish your ­priorities in advance and stick to them. Identify house features most important to you by completing our Ideal House Profile, which lists all major categories such as upper price limit, number and type of rooms, and location. A sample is shown below.

FORM
You can download a copy of the Ideal House Profile. Go to the companion Web page for this book; you’ll find the URL in the appendix.

If you’re buying with another person, prepare your list of priorities separately, then compare and modify them so that each person’s strong likes and dislikes are respected and you have any arguments before you’re with a real estate agent.

Must Haves: Mandatory Priorities

First, use the Ideal House Profile to name what you must have in a house, such as a particular city or neighborhood. Since price is an obvious consideration, fill in the top section first. For example, under Upper price limit you might note $1.2 million, with a Maximum down payment of $300,000. Then fill in the rest of the form.

 

Ideal House Profile

Upper price limit:

$1.6 million

Maximum down payment:

$400,000

Special financing needs:

N/A

 

Must Have

Hope to Have

Neighborhood or location:

Northern Berkeley

X

 

Near Oxford Street

 

X

School needs:

Berkeley High School

X

 

Desired neighborhood features:

Quiet street with little traffic

X

 

Walking distance to Peet’s flagship store,
North Berkeley

X

 

Neighborhood association

 

X

Lots of trees

 

X

Length of commute:

Maximum of 15 minutes drive to Berkeley office

X

 

Access to public transportation:

Walking distance to S.F. express buses

X

 

Size of house:

Minimum 1,600 square feet

X

 

Number and type of rooms:

3 bedrooms/2 baths

X

 

Modern kitchen

X

 

Family room for kids

 

X

Eat-in kitchen or breakfast nook

 

X

Condition, age, and type of house:

Updated home built in the 1920s

X

 

Type of yard and grounds:

Fenced-in yard

X

 

Private yard

 

X

Other desired features:

Easy parking

X

 

Lots of light

 

X

Absolute no ways:

House in an active or potential slide zone

 

TIP
Pay close attention to the School needs category. If you have children, buying a great house at a great price in a lousy school district may mean years of paying for private schools. By contrast, paying more for an okay house in an excellent school district may be a bargain in the long run. And if you plan to move in a few years, it will be easier to sell a house in a good school district, because that feature is important to many potential buyers.

If you have two kids, you might note that three bedrooms, excellent public schools, and a street with lots of children are must haves. If you plan to live in the house after retirement, a minimal number of stairs and short distances to shops and services might be must haves.

Hope to Haves: Secondary Priorities

Once you’ve compiled your list of must haves, jot down features that you’d like but aren’t crucial to your decision of whether to buy. For example, under Type of yard and grounds, you might note patio and flat backyard in the Hope to Have column. Or under Number and type of rooms, you might list finished basement or master bedroom with bath.

Take a second look at your Must Have column. You might wonder how you will ever afford a house with the features you’ve listed. Don’t despair—at least, not until you understand the strategies ­(discussed in Chapter 3) to help you buy an affordable house. For now, you might need to change a couple of must haves to hope to haves.

Absolute No Ways

Be sure to list your “absolute no ways” (you will not buy a house that has any of these features) at the bottom of the Ideal House Profile. Avoiding things you’ll always hate—such as a house in a flood or slide zone, poor school district, or high-crime area—can be even more important than finding a house that contains all your mandatory priorities.

If you’re moving into a new-house development or condominium, think about what rules you can and can’t cope with. Its covenants, conditions, and restrictions (CC&Rs) might be quite detailed and restrict everything from the color of your house to your choice of pets and landscaping. (CC&Rs are discussed in more detail in Chapter 7.)

Create a House Priorities Worksheet

Now use the information collected in your Ideal House Profile to create a master House Priorities Work­sheet.

Enter the relevant information under each major category—Must Have, Hope to Have, and Absolute No Ways.

FORM
You can download a copy of the House Priorities Worksheet. Go to the companion Web page for this book; you’ll find the URL in the appendix.

Once you have completed your House Priorities Worksheet to your (and your partner’s) satisfaction, make several copies to carry with you on home visits. If you look at a lot of houses, taking notes will help make sure you don’t forget important information.

For each house you see, fill in the address and enter check marks when the house has a desirable or undesirable feature. Also, make notes next to features that can be changed to meet your needs (for example, an okay kitchen that could be modernized for $45,000).

Add comments at the bottom, such as “potential undeveloped lot next door” or “neighbors seem friendly.”

You should seriously consider only those houses with all or most of your must haves and none of your no ways. If you visit a nice, reasonably priced house that doesn’t come close to matching your list and can’t be easily changed to do so, say no. Take the time to find a more suitable house; you’ll be glad you did.

TIP
Set up a good information filing system. See “Organizing Your House Search” in Chapter 6.

Don’t Be Fooled by Staged Homes

House “staging” is now a regular practice in home sales. The right paint, furniture, music, and smells can create illusions that would make Martha Stewart and Houdini jealous. The point is to optimize the charms of a house. As Carol Serkes says, “No one ever watches TV in a staged home.”

Also, notes coauthor Ira Serkes, “Your first impression of the home is likely to come from online photos; but keep in mind that one reason sellers stage their homes is that photos of staged homes look far better than those of vacant ones.”

So if you visit a house that just reeks of charm—look behind, above, and below. Imagine it empty, or with your own furniture, office equipment, kids’ toys, and toothbrushes.

 

Prepare a House Comparison Worksheet

If, like many people, you look at a consider­able number of houses over an extended period of time—or even in the space of a week—you might soon have trouble distinguishing or com­paring their features. That’s where our House Comparison Worksheet comes in.

Across the top of the form, list the addresses of the three or four houses you like best. In the left column, fill in your list of priorities and no ways from your Ideal House Profile and House Priorities Worksheet. Then put a check mark on the line under each house that has that feature to allow for a quick comparison.

A sample is shown below.

House Comparison Worksheet

House 1: 257 Loving Avenue, Berkeley

House 2: 1415 Gaylord Street, Berkeley

House 3: 999 Spruce Street, Berkeley

House 4: 5 Marin Way, Berkeley

 

1

2

3

4

Must have:

North Berkeley neighborhood

X

X

X

X

Berkeley High School

X

X

X

X

Quiet street with little traffic

X

X

 

 

Walking distance to Solano Avenue

 

X

X

X

Maximum of 15 minutes drive to Berkeley office

X

 

X

X

Walking distance to S.F. express buses

X

 

 

X

Minimum 1,600 square feet

X

X

 

X

3 bedrooms/2 baths

X

X

 

X

Modern kitchen

 

 

X

 

Good shape, less than 100 years old

 

X

 

X

Fenced-in yard

X

X

X

 

Easy parking

 

 

X

X

Hope to have:

Oxford or Spruce Street

 

X

 

 

Neighborhood association

 

X

X

 

Lots of trees

X

 

X

X

Family room for kids

X

 

 

 

Eat-in kitchen or breakfast nook

X

X

X

 

Private yard

X

X

X

 

Lots of light

 

X

X

X

Absolute no ways:

House in an active or potential slide zone

X

X

X

 

FORM
You can download a copy of the House Comparison Worksheet. Go to the companion Web page for this book; you’ll find the URL in the appendix.

True Story

Ellen: How Not to Buy a House

I was a first-time buyer on a relatively tight budget when I set out to buy an older, attached row house in San Francisco. I wanted two bed­rooms, no (or a very small) yard, proximity to a downtown bus route, and walking access to a neighborhood market and bookstore. I looked for many months at houses that were completely unsuitable, far too expensive, or, with depressing regularity, both. So I broadened my search by reading the classifieds. When I saw that prices were more reasonable in the suburbs, I spent a sunny Sunday afternoon browsing in Contra Costa County.

At the first open house I visited, I met an energetic real estate agent who spun a wonder­ful word picture of the joys of suburban life: lots of sun, room for a tomato garden, and friendly neighbors. She showed me a split-level house with an apple tree in full bloom in my price range. Almost before I realized what I was doing, I signed on the bottom line.

That was the fun part. Soon I was getting up at 6:00 a.m., driving to the train station, and standing for the 40-minute ride to San Francisco. My fantasy about the joy of suburban life was just that. It’s hard to believe now, but I seemed to have temporarily overlooked the fact that I’m allergic to direct sun, detest tomatoes, and moved out of the suburbs to get away from overly involved neighbors.

Fortunately, I sold the house six months later, at a small profit. I went in with a friend and together we bought a house in San Francisco that meets my needs perfectly.

‚óŹ

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