Buying a home can be one of the largest financial decisions individuals make, and careful preparation is important before entering the market, according to guidance from the California Department of Real Estate (DRE).
The DRE recommends that prospective buyers start by clarifying their priorities. Buyers are encouraged to consider long-term plans, such as whether they intend to stay in the home for at least five years and if the property will meet future needs like family changes or remote work. Deciding on the type of house—whether it’s a single-family home, condominium, duplex, or fixer-upper—is also important.
Location preferences should be factored in, including proximity to work or school, neighborhood safety, local amenities, and any upcoming development plans. Buyers should also assess housing inventory trends and average time homes remain on the market in their preferred areas.
Creating a list of essential features versus desirable extras is suggested for both buyers and their real estate agents. Consulting with friends or family members who have already purchased homes may provide useful insights.
Financial readiness is another key step. The DRE advises buyers to evaluate what they can realistically afford—including not just mortgage payments but also down payment, closing costs, insurance, taxes, repairs, upgrades such as energy efficiency improvements or drought-tolerant landscaping, and ongoing expenses like utilities and homeowner association dues.
“Typically, you’ll need 5 percent to 20 percent of the purchase price for a down payment, depending on your financing arrangements, and an additional 3 percent to 7 percent for closing costs. Please note: if you put less than 20 percent down for a downpayment, you may be required to have an impound account and/or pay private mortgage insurance (PMI),” according to information provided by DRE.
Buyers are reminded not to focus solely on the maximum loan amount offered by lenders but instead on monthly payments within their budget so as not to risk foreclosure if circumstances change.
“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,” states DRE’s guidance.
Comparing lender rates and fees is recommended along with considering pre-approval before starting a search. Lenders typically review credit scores/history and debt-to-income ratios when determining eligibility.
“Some lenders offer first-time homebuyer discounted rates and there are government programs to assist qualified first-time homebuyers,” says DRE.
Understanding different types of mortgages is also emphasized. “Make sure you understand the loan’s interest rate, terms of the loan, and monthly payment for principal and interest.”
The department explains: “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… The specific terms for each type of mortgage varies.”
The DRE encourages checking license status when working with real estate professionals either online or by calling them directly at 877-373-4542.
When searching for homes, buyers should keep affordability top-of-mind while ensuring they understand any special taxes or assessments attached to properties—including those related to solar systems—and seek clarity from agents about any associated financial obligations.
The agency cautions against letting emotions drive decisions during homebuying: “Buying a home is both an emotional and financial decision… Take your time to weigh the pros and cons of each listing you tour before making a decision.”
Additional tips are available through resources provided by DRE.
