What do you need to know about buying a house in Orange County? In 2022, the median home price in O.C. is up more than 18% according to some real estate blogs, and you can expect to pay at or near $1 million.
Compare that to the prices in Riverside (roughly $500k in 2022) or San Diego ($750k in 2022) and it’s easy to see that you’ll need a bit more planning and strategy when buying an O.C. home. Saving more, going to houses as soon as they hit the market, and coming to the home loan process with good credit will help.
A high-cost market like Orange County may require some borrowers to rethink their plans.
You might be interested in a conventional mortgage to buy a home, but if you are struggling with a down payment you may need to consider a government-backed, low-down payment program like an FHA mortgage instead. Or you may need to wait longer and save more money to put down on the home.
In a competitive market like Orange County, you may encounter other buyers who are willing to buy a home outright in cash or who have the ability to make a higher offer than you. It is key not to panic-offer on a home because you are afraid another buyer might get it.
Even if the buyer seems to be 100% “bulletproof” at the time of the offer, they could have a change in circumstance, finances, or other issues that wind up preventing the sale. Don’t give in to emotional house hunting–let your finances and plans dictate what to do next.
In terms of the homes themselves, some borrowers are tempted to make their offers more tempting for the seller by opting for a zero-contingency sale. This means the buyer does not require the home to pass an inspection or appraisal. The house is sold “as-is” similar to buying a repo home.
Whether or not you should do this is strictly up to you, but buying a house that has not been inspected (as opposed to having been appraised which is a totally different process) is like buying a used car without taking it on a test drive. Don’t buy a home you have not had inspected.
Some houses in Orange County might be for sale on the market at what seem to be (for the area) incredibly low prices.
There may be a very good reason for those lower prices. A home close to a shale gas development project, for example, may be affected by environmental factors associated with that proximity. The same is true for homes located near smoke stacks, EPA superfund sites, and other potentially troublesome environmental factors. It’s a good idea to aggressively compare prices for similar homes in other areas farther away from these areas. “Too good to be true” usually is.
Some properties won’t qualify at all for certain government-backed home loans when located too close to certain industries that can affect the environment around them. FHA and VA mortgages, for example, do not permit loans for homes too close to high-pressure gas pipeline easements, high-voltage easements, drilling, or mining operations.
Some conventional loans may not have such prohibitions; in those cases it’s up to the buyer to perform her due diligence and make sure the property isn’t too close to a nuisance or actual threat to health and safety.
In a high-cost area for real estate, being ready early is an important factor. But what does “ready” mean? A basic article would tell you to save up as much for a down payment as you can before you apply.
But a less obvious tip for buying a home in Orange County–one that could actually HELP you? Take a look at the median house prices in the neighborhoods you might want to buy in.
Calculate a 20% down payment for these homes and see what number you get. Putting 20% down on a conventional mortgage means you don’t have to pay for mortgage insurance as part of your monthly mortgage payments. And with median home prices at or near $1 million, you’ll likely want to reduce your costs as much as possible.
Not everyone can afford 20% down, it’s true. But the bigger your down payment, the more competitive you are as a buyer. The lender is more inclined to approve your application and to offset the bigger down payment you can negotiate with the seller on closing costs–your seller may be able to contribute a portion of those costs as an incentive to buy.
If you are not applying for a conventional loan but choosing an FHA or VA mortgage instead, know that the seller cannot provide funds for your down payment.
There is no requirement to use a real estate agent when buying a home, but consider this. Higher-priced homes may have more competition. Unless you work in the real estate industry, do you really have time to monitor home sales and listings to find the most recently listed properties on the market?
Getting there first may make a big difference in your chances to buy, and a real estate agent may be able to help you learn about new opportunities in the market before you can get around to doing the research.
The key is to find a reputable agent working for a firm with a long history. You want someone who knows the Orange County neighborhoods you’re interested in and who can help you find a home there that meets your specific needs.
Using an RE agent can be especially useful if you are moving to Orange County from outside the area, or if you are interested in special types of houses (duplexes, tiny homes, custom homes, etc.) that might not be as popular as others in the market.
When you talk to the real estate agent you might want to work with, be sure to ask how long they have been in the industry, what kinds of homes they specialize in, and the price ranges they are experienced with.
You should also ask if they have specific experience in any specialty housing you might seek, especially if you want a mixed-use or mixed-zoning property.
The most obvious advice you’ll read about pre-approval is that it’s something you should definitely do if you want house sellers to take you more seriously as a buyer. But the not-so-obvious advice here?
You should work on your credit for at least 12 months before you attempt to get pre-approved. Why?
Because when you buy a home in times where mortgage rates are on the rise, you may prequalify at a certain interest rate only to have conditions change in the meantime. When you go to apply for the loan, you apply for it with an interest rate offer from the lender that is current at application time–NOT at pre-approval time.
Some transactions fail because the borrower’s FICO scores were not sufficient to justify loan approval at the new, higher rates after pre-approval. If your credit is stronger, you may be able to weather the higher rates and get your mortgage loan approved.
If your credit is weaker you may not get the loan approved depending on circumstances. Or you may be asked to make a higher down payment in compensation.
Remember our advice to start early on an Orange County home loan? This is one reason why we give that advice. The more prep you do, especially on your credit, the less likely this scenario is to result in your loan being denied.
Some borrowers are confused by the pre-approval interest rate issues we mention above. Once you are pre-approved for the loan, your interest rate is protected, right?
Not until you enter into a formal interest rate lock commitment with the lender. A mortgage rate lock is an agreement you and the lender make to lock in a specific interest rate offer for your mortgage.
You agree to this in writing, a fee may be involved, and most importantly, the rate lock has an expiration date and is NOT indefinite.
That is why you typically don’t make these agreements until after you have found the specific house you want to buy, make an offer, and have the lender run the loan. A mortgage rate lock is a step you make once you have committed to buying a specific property. It is typically not available as a pre-qualification step.
If you are ready to begin house hunting, remember that you’ll want to continue working on your credit and keep saving money for your down payment as long as you can.
Don’t apply for any new credit ahead of your home loan application and know that when your loan officer approves your home loan for an Orange County house, you are subject to at least one additional credit check before closing day. Some borrowers do not realize that loan approval is still conditional until you close the loan.
When you find a home to buy, do not pass up the home inspection no matter what the results of the appraisal might be. An appraisal does not tell you the true condition of the home, it only helps the lender make sure the property meets minimum standards and set the fair market value of the house.
You can opt to make your purchase of an Orange County home contingent on the results of a home inspection; some may advise you to avoid putting conditions on the purchase of the home but to protect yourself, it’s smart to weigh your options in this area.
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Joe Wallace has been covering real estate, mortgage and financial topics since 1995. His work has appeared on ABC, The Pentagon Channel, Veteran.com plus a variety of print and online publications. He is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.