How to Transition from Renting to Owning a Home in California

Are you tired of renting a home in California and ready to make the transition to homeownership? Wondering what steps you can take right now to turn that goal into a reality?

You’re in the right place! Below, we’ve gathered some helpful tips for current renters in California who want to switch from renting to owning a home.

Best Practices for Renters Planning to Buy

The internet is full of tips for renters who want to buy their first house, to the point of being overwhelming. So let’s start with a simplified framework.

1. Create a budget and start saving money now for both your down payment and closing costs.
2. Calculate the full cost of homeownership, including principal, interest, property taxes, and insurance.
3. Research various mortgage options, including FHA, VA, USDA, and conventional loans.
4. Build a solid financial foundation by checking your credit score and reducing debt (if needed).
5. Broaden your home search to include surrounding communities to find more affordable options.
6. Prepare for lifestyle changes, including taking on maintenance and upkeep responsibilities.
7. Get pre-approved for a mortgage to know your budget and strengthen your buying position.

How to Go from Renting to Owning in the Bay Area

You’re currently renting a home or apartment in California, but you’d rather be a homeowner. How do you make that happen? Here are five steps you can take to turn your dream into reality.

1. Create a budget and start putting money aside.

Some Bay Area renters get caught off guard when they try to transition to buying a home. They’re surprised by all of the upfront costs that come with a home purchase.

Take closing costs, for example.

In a pricey real estate market like ours, closing costs can add up to thousands of dollars. And unless you use a zero-down mortgage program like the VA loan, you’ll probably have to make a down payment as well.

So it makes sense to put some money aside to help cover these home-buying expenses. This is something you can start doing right now, while you’re still in the early stages of research and planning.

The sooner you start saving, the better!

While you’re at it, you might want to create a basic housing budget. It doesn’t have to be complex. Just take a close look at your monthly earnings versus your recurring expenses, and work down from there.

The idea here is to go into the house-hunting process with some idea what you can afford to spend each month on a mortgage payment. This process will also help you figure out how much money you need to save.

2. Calculate the full cost of homeownership.

If you’re switching from renting to owning in California, and you need a mortgage loan to make it happen, be sure to calculate the full cost of homeownership.

The principal amount you borrow will make up the bulk of your monthly payments. But there are other pieces to the pie as well.

In fact, a typical monthly mortgage payment consists of four different components. They’re often referred to as “PITI” based on the first letters of each component.

• Principal amount borrowed
• Interest rate
• Taxes (i.e., property taxes)
• Insurance (i.e., homeowners insurance)

If you want to compare the cost of renting to owning a home in California, you’ll have to account for all of these elements. Some mortgage calculators will help you out by filling in the averages for tax and insurance parameters.

3. Expand your search box to improve your chance for success.

California has the highest home prices of any state in the country, and by a wide margin. You probably already know that.

What you might not know is that prices can vary widely from one community to the next, even within the same city.

Many people who switch from renting to buying are unable to afford their first-choice neighborhood, city, or community. In these cases, it helps to expand your search box as much as possible.

If you broaden your search to include surrounding communities, you might encounter lower prices, less competition, more inventory — or all three. Best of all, you can do this kind of research online for free.

4. Be prepared for a lifestyle adjustment.

When you switch from renting to owning in California, you’ll experience a number of lifestyle and financial changes.

The biggest advantage of buying versus renting a home is that you gain an asset.

• As a renter, you make a monthly payment just for the right to occupy the unit. But you don’t gain anything back in return, aside from a roof over your head.
• As a homeowner, on the other hand, you’re making a monthly investment in something you actually own. So you gain equity over time.

But you’ll also encounter some maintenance and upkeep costs you didn’t have as a renter. Some people who switch from renting to owning are surprised by all of the maintenance-related tasks they take on.

Homeownership comes with pros as well as cons. So it’s important to consider both sides of the equation.

5. Get pre-approved for a loan before house hunting.

Getting pre-approved for a home loan will help you narrow your search to a specific price range, saving you time and energy. Pre-approval is especially helpful for renters who want to purchase a home.

Mortgage pre-approval is when a lender evaluates your financial situation—including credit score, income, debt, and assets—to determine how much you’re eligible to borrow.

The lender will also provide a written pre-approval letter stating the maximum loan amount and potential terms.

This letter puts you in a stronger position when it comes time to make an offer on a house. It can make sellers more inclined to accept your offer, since you’ve been “pre-screened” in advance.

How We Can Help You

Bridgepoint Funding is based in the Bay Area but serves the entire state of California. We regularly work with renters who want to make the switch to homeownership.

Here are some of the ways we can help you make this transition:

• Financial Readiness: We can review your income, credit score, debt-to-income ratio, and savings to determine if you’re ready to buy a home.
• Measuring Affordability: We can help you understand how much home you can afford to purchase based on income, expenses, and loan options.
• Loan Programs: We can explain the different mortgage options, including FHA, VA, USDA, and conventional loans, and find the best fit.
• Monthly Costs: We can break down the expected mortgage payments, property taxes, insurance, HOA fees, and maintenance costs, to help with budgeting.
• Pre-Approval: We can pre-approve you for a specific mortgage amount to expedite your housing search and help you make a stronger offer.
• Post-Purchase Support: We regularly advise our long-term clients on important money matters such as refinancing, home equity loans, and more.