California Dreaming, are we? The challenge is real when faced with the obstacle of purchasing your first home in the nation’s most expensive housing market—a $ 829,700 sticker price on an average median home price in the Golden State. The coastal living of California does come with a hefty dose of sticker price shock. And while migration patterns show more residents exiting California, the economics of supply and demand still exist- limited inventory and strong demand, especially from international buyers paying cash or those moving from expensive areas into more affordable spots.
This guide covers everything you need to know to make that dream come true, from budgeting tips to the buying process and market insights tailored to California’s unique housing landscape.
Financial Preparation
Budgeting Basics
You are budgeting what is likely your biggest financial decision. In California, this burden can feel even more overwhelming than in other localities. Why? According to Redfin, the median home price in California is $829,700 (as of November 2024). That ranks as the most expensive state in the US. Just in case you’re wondering, Hawaii is at $799,000.
With a 20% down payment, you’re looking at approximately $165,940 for that home in California. Don’t forget to add closing costs (an additional 2-5%) and other fees.
- State median home price: $829,700
- Down Payment (20%): $165,940
- Financed Amount (after down payment): $663,760
- Monthly Mortgage Payment (7%): $4,411 per month (Principal and Interest)
As a brief background- Mortgage rates have been a significant concern for first-time homebuyers, especially following the historically low rates during the pandemic years. At the onset of 2021, the average 30-year fixed-rate mortgage reached an all-time low of 2.65%. However, rates began to climb, peaking at 7.79% in October 2023.
Again, let’s do the math.
| Interest Rate | Monthly Payment | Difference from 7% |
| 2.65% (Pandemic Low) | $2,675 | -$1,736 |
| 4% (Pre-Pandemic Average) | $3,169 | -$1,242 |
| 7% (Current Rate) | $4,411 | $0 |
Once you’ve determined your downpayment needs, you’ll have the primary budget item needed to determine whether you can realistically move forward. Beyond that, there are many other costs, some seemingly hidden.
- Insurance: Nerdwallet calculates insurance to be approximately $1250 yearly or about $104 monthly.
- Home Owner Association Fees: HOAs can vary greatly, but a range of $300-$1000 is reasonable, depending on the community and its amenities.
- On-Going Maintenance Costs: Annual maintenance costs vary between 1-3% higher for older homes. On an $800,000 home, you’re looking at $8,000-24,000 or ~$667-2000.
- Utilities: Tuck away at least $200-$400
Pro Tip: When creating your budget, factor in hidden costs such as property taxes, insurance, homeowner association fees, and maintenance expenses. Rookie mistake avoided!
First-Time Homebuyer Assistance Programs
Can’t scrape up $165,000+ for that 20% down payment? You’re not alone. Fortunately, there are many programs offered by various state government agencies, such as The California Housing Finance Agency (CalHFA):
- MyHome Assistance Program: Downpayment assistance provides up to 3.5% of the home’s value for down payment or closing costs.
- Mortgage Credit Certificate (MCC): Offers tax credits, reducing your tax bill.
- Forgivable Equity Builder Loan: A program that provides forgivable loans for eligible lower-income buyers.
Firefighters, teachers, law enforcement officers, or medical technicians—there’s a program for you. Suburban and rural homebuyers? We’ve got something for you too.
Have you served your country? First, thank you for your service, veterans. Second, there are loans specifically designed to make homeownership more manageable for you.
Below is a list of some of the most pertinent government agencies and loan products available to help you achieve your homeownership goals:
Pro Tip: Check eligibility requirements as early as possible to expand your financing options.
The Home-Buying Process: First Timer’s Step-by-Step Guide
The process of obtaining a home starets with the pre-approval and has numerous steps that follow. Here’s a rundown of the homebuying journey:
Obtain Pre-Approved: Even before starting the housing search, secure a mortgage pre-approval from the bank. This will show your seriousness as a buyer, demonstrate your ability to afford the home, and saving you time.
Research loan programs: Explore financing pptions suited to your needs and qualifications. We’ve outlined a few, including FHA, VA, and CalHFA, which offer first-time homebuyers lower down payments or reduced rates.
Research Neighborhoods: When moving to a new area, it’s critical to understand commute times, quality of schools, and lifestyle activities. If you’re unsure about specific neighborhoods, do further research. Or better yet, consider renting.
Work with a Local: A local Realtor will be familiar with neighborhoods that match your needs and budget. Their insight into local market conditions and their ability to educate you about purchasing in California are invaluable.
Budget for closing costs: Expect to pay 2-5% on closing costs, which include- lender fees, escrow fees, title fees, and appraisals.
Make an Offer: Once you’ve identified your dream home, submit an offer. Don’t feel pressured to make emotional decisions; be prepared to negotiate, especially in competitive markets.
Do Home Inspections: Never skip home inspections—it’s your first defense against costly surprises.
Plan for ongoing homeownership costs: The mortgage is just one cost- be sure to budget for insurance, HOA dues, property taxes, and maintenance.
Prepare for moving day: Arrange utility connections, schedule movers, and budget for urgent repairs needed for your home.
Now that we’ve knocked out the steps for buying a home, the next step is to figure out where to focus your homebuying search.
Regional Differences and the Top-Growing Metros
Not sure where to start? Here are the fastest-growing markets in California.
Source: https://www.redfin.com/state/California/housing-market
Orange County stands out as one of the most popular locations for homebuyers, with Orange, Yorba Linda, and Seal Beach all in the top 10 fastest-growing markets. The county gives the coastal lifestyle vibe, has excellent school districts, and a diverse employment base in education, tech, healthcare, and the entertainment industry.
East of Los Angeles County, you’ll find more affordable space and affordable housing in San Bernadino County. Great for remote workers or those with families.
Up north, an affordability challenge exists, particularly in the Bay Area and San Francisco. This, in turn, has led locals to seek alternative, more affordable areas such as the Sacramento area. Notably, towns such as Arden-Arcade provide suburban lifestyles at a lower cost. East of San Francisco is Contra Costa County’s Richmond, which maintains proximity to both San Francisco and Oakland but has lower living costs. Tech professionals are also moving towards Sunnyvale, Fremont, and Livermore in Santa Clara and Alameda Counties, all within reach of major employees such as Google and Apple.
Pro Tip: If you’re eyeing high-demand areas like Glendale or Fremont, move quickly and make strong, competitive offers. A great realtor can help!
Property Taxes and Proposition 13
Overview of Proposition 13
Understanding property taxes is critical when budgeting for your first home. In June 17978 California passed Proposition 13. The proposition established a tax system limiting property taxes to 1% of the purchase price, with annual increases capped at 2%. This system was meant to ensure that taxes remain stable and predictable, providing a financial safeguard for homeowners.
For example, purchasing a $800,000 home in Orange County would result in $8,000 in annual property taxes, which can only rise modestly over time. Understanding this means unlocking one of the key advantages of buying in the Golden State.
If that’s not complicated enough, knowing that California has supplemental taxes is very important. These first-year taxes on new home purchases are added to cover discrepancies between the prior owner’s assessed value and the new purchase price—a not-so-tiny detail many first-time buyers overlook.
Why Prop 13 Matters
- Tax Stability: Prop 13 ensures property taxes are consistent, freeing homeowners from sudden surges in tax spikes. This system also allows predictable government revenue.
Long-Term Stability:
- California’s 2% Cap: Annual tax increases are capped at 2%, so long-term homeowners enjoy predictable, stable taxes. Over time, this stability often offsets the high initial costs.
- Other States: In places like New York, where property values are assessed annually, taxes can increase significantly based on market trends, creating unpredictability on what you’ll need to pay the government each year.
- Supplemental Tax- Many first-time homebuyers, especially those coming from out of state, may be surprised to hear about this one-time adjustment reflecting the difference between the previous owner’s assessed value and the new homebuyer’s purchase price for the fiscal year. The example below provides a reasonable expectation.
An Example of Mismatched Assessed Values
Prior owner (bought the house in 1990): Assessed Value $300,000 → Taxes- $3,000
New buyer (bought in 2025): Assessed Value $1,000,000 → Taxes $10,000
When the new homebuyer purchases the home, the assessed value skyrockets from $300,000 to $1,000,000.
- Difference in Assessed Value: $1,000,000 – $300,000 = $700,000.
- Supplemental Taxes: 1% of $700,000 = $7,000.
- Moderate National Ranking: Despite California’s high housing costs, its effective property tax rate, at 0.76%, ranks 34th nationwide due to the long-term effects of Prop 13.
*Note – the effective property tax rate is the overall average of property tax paid as a percentage of the market value of a property, not the assessed value.
Comparison: California vs. Other States
| State | Reassessment Policy | Supplemental Taxes? | Key Takeaway |
| California | Only when sold or newly built | Yes | Higher initial cost but stable long-term taxes |
| Nevada | Annual (capped at 3% increase) | No | Gradual, predictable adjustments |
| Arizona | Annual reassessment | No | Low taxes with steady annual changes |
| New York | Annual or biannual reassessment | No | Higher taxes with sharp increases over time |
Pro Tip: Before finalizing your home purchase, use a property tax calculator to estimate your ongoing costs, including supplemental taxes. A great realtor and escrow officer can also help estimate costs.
Renting vs. Buying: Making the Right Choice
Are you just dabbling in the housing market and not ready to pull the trigger? Why not rent? Renting offers much more flexibility, allows you to feel like you are in a town, and provides a great transition into home ownership without the rush and pressure of purchasing. While it does avoid upfront costs, the financial trade-off is you won’t be building any home equity, which is where many folks have built their wealth. On the flip side, purchasing your first home gives you property appreciation turned into equity, but it requires higher upfront expenses.
Benefits of renting
- No upfront costs: If you don’t have enough for the large down payment, closing costs, and other fees such as insurance, this may be the best option.
- Flexibility: Work stability is crucial here, especially if you anticipate future relocations.
- Maintenance-Free Living: Homeownership requires home maintenance. However, as a renter, your landlord will be responsible for most repairs and maintenance, saving you time and money.
- Find Your Fit: Renting allows you to try different neighborhoods without making you feel stuck to a long-term commitment.
Regional Example San Francisco
To illustrate rent versus buying, let’s use the example of San Francisco.
According to Rent Cafe, the average apartment in San Francisco is 734 square feet and rents approximately $3,313. Using the median sale price per square foot metric with Redfin’s data of $888, that same apartment would cost $651,792.00. The same data shows the average home costing $1.35m (on ~ a 1520 sqft home).
Source: https://www.rentcafe.com/average-rent-market-trends/us/ca/san-francisco/
Break-down
- Purchase Price: $651,792.00
- 20% Down Payment: $130,358.40
- Loan Amount: $521,433.60
- Monthly Mortgage Payment: $3,469.11 (at a 7% annual interest rate for a 30-year term)
*Note this does not include insurance, home association, or closing costs. So beyond the $130k, you’ll need to have $10-20k for those miscellaneous fees.
Pro Tip: Renting might be your best option if you anticipate frequent relocations for work or lifestyle. However, buying is a more intelligent move for long-term stability.
Common Pitfalls to Avoid
First-time home buyers often make costly mistakes. Watch out for these pitfalls:
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- Skipping Pre-Approval: Preparing for financing will be one of the major tasks at hand; without pre-approval from the bank, you may lose out when you go up to bat with purchasing a home. Other potential buyers will be prepared with this.
- Skipping Inspections: In a competitive seller’s market, buyers may skip home inspections. Don’t do this, as it could lead to significant repair costs.
- Underestimating Closing Costs: These can add up to 2–5% of the purchase price.
- Underestimating Taxes: These can be over $10,000 or more, depending on your purchase price.
Pro Tip: Work with trusted professionals—real estate agents, loan officers, and inspectors—and keep emotions in check during the bidding war.
Innovative Strategies for Your First Home Purchase
Final Tips
- Explore first-time homebuyer assistance programs and tax-saving strategies to reduce costs.
- Negotiate commission rates with your realtor.
- Create a contingency and emergency fund for unexpected expenses or emergencies. Typically, 3-9 months is recommended.
Helpful Resources
- California Housing Finance Agency for local loan program details.
- Redfin for housing market insights and calculators.
- Zillow Home Buying Resources
- California Association of Realtors (CAR)
- Mortgage Calculator
- U.S. Department of Housing and Urban Development (HUD) – Buying a Home
Journey to Your Dream Home in California Starts Here
Ready for the ride? Remember you’re mortgage is 30 years long but the memories of a home are forever. But of course there’s the practical side of things. The high sticker price, competitive markets with low inventory, and the challenge of finding the right neighborhood can make it daunting. However, you can now understand the home-buying process, explore loan assistance programs, and choose a region that aligns with your lifestyle. You’ve already taken the first steps in educating yourself, and with a few more steps, you’ll be well on your way to purchasing your dream home.
Ready to take the next step? Connect with local realtors and begin your journey today!
