The process and legal requirements for purchasing a home vary from state to state, and in California, laws can differ from city to city. Here’s what you need to know about buying a home in San Francisco:
Home seller and buyer laws
California law states that sellers must complete a real estate Transfer Disclosure Statement (TDS) detailing the condition of the property. The form covers a range of areas in and around the home, including the state of appliances, structural components and the presence of environmental hazards.
Additionally, sellers must provide a Natural Hazard Disclosure (NHD) statement indicating if the property is in a flood hazard area, earthquake fault zone or an area with a high fire hazard. Sellers are required to submit the disclosures before the purchase agreement is executed, or the buyer can cancel the contract or withdraw the offer within three days of receiving the disclosures (five days if delivered by mail).
California buyers are not required by law to hire an attorney to represent them at closing, as is necessary in some states. Buyers can use an escrow agent, such as a title insurance company, escrow company, real estate agent or attorney. Note that in northern California, where San Francisco is located, title companies typically act as the escrow agent in addition to performing the title work.
Should you encounter problems paying your mortgage, know that there are two types of foreclosure processes in California: non-judicial and judicial. With a non-judicial foreclosure, lenders do not go through the courts to foreclose on your home. Instead, they follow a series of steps that results in the sale of your home. In a judicial foreclosure, lenders must file a lawsuit and get a court order to foreclose. Non-judicial foreclosure is typically a faster process and is the most common type of foreclosure in California.
For homeowners who face divorce, California is one of only nine community property states. In a community property state, all assets and liabilities acquired during the marriage belong equally to both spouses. This is in contrast to equitable distribution states that split property and debt proportionally between spouses, rather than equally. Living in a community property state can affect your ability to qualify for a mortgage as some government loans count the debt of both spouses during the loan approval process even if one spouse will not occupy the home.
Dealing with taxes when purchasing a home can be confusing in any state. In California, it’s even more complicated. Here is an overview of what you need to know.
In San Francisco, real estate transactions incur a transfer tax, which is based on the purchase price of the home. Properties priced higher than $250,000 but less than $1 million incur a tax at the rate of $3.40 for each $500 or a portion thereof. Properties priced above $1 million but less than $5 million have a transfer tax rate of $3.75 for each $500 or a portion thereof.
For example, a home bought for $500,000 would incur a transfer tax of $3,400, while a home at the median price of $1,762,500 would incur a transfer tax of $13,218.75.
Work with your real estate agent and escrow agent to determine if the transfer tax will be split between you and the seller. This could be a point of negotiation during the process. Your lender will provide you with the final amount you’ll need to pay, if any, on your Buyer’s Statement as you near closing.
Under California law, the value of a home is reassessed annually and whenever a change in ownership occurs to determine the current property tax. As a result, your property taxes may be different than the previous owners’.
And depending on the month you close on your home, you may receive one or two supplemental tax bills in addition to the taxes due at closing.
Once you own your home, of course, you’ll be responsible for paying annual property taxes. The City and County of San Francisco has one of the highest property taxes in the country, according to Tax-rates.org. The median property tax collected in the county is $4,311 for a home worth $785,200, significantly higher than the state median tax of $2,839.
In California, while property taxes may fluctuate from year to year, state law places a cap on how much taxes can increase in a single year.
Property tax exemptions
To help ease the strain of property taxes, California provides exemptions to eligible homeowners. The Homeowners’ Property Tax Exemption is a $7,000 reduction in the taxable value of a property. To be eligible, homeowners must occupy the home as their primary residence and file with the San Francisco Tax Assessor’s office. Residents can continue to receive the exemption as long as they qualify.
Disabled veterans and surviving spouses in San Francisco can claim the Disabled Veterans’ Exemption, which reduces the taxable value of a property by $100,000 or $150,000 depending on the homeowner’s income.
Conforming loan limits
The conforming loan limit for a single-family unit in San Francisco is $726,525. This represents the maximum loan amount for a conventional mortgage ensured by the government-sponsored enterprises Fannie Mae and Freddie Mac. Because San Francisco is a high-cost area, the limit is significantly higher than the standard limit of $484,350 in place for much of the country.
Buyers who wish to finance a home in San Francisco for more than $726,525 will need to apply for a jumbo loan, which typically has a higher interest rate and is harder to qualify for.