For many people who want to buy a home in the Bay Area, the statistics can be daunting. Last month, HSH.com looked at how much income you need to buy a median-priced home in 25 of the country’s largest metro areas, and the San Francisco Bay Area came out on top. To cover the principal and interest alone on a median-priced home in the greater Bay Area ($682,410), you would need $115,510 in annual income.
Fortunately, I have some tips to help you achieve your dream of being a Bay Area homeowner. I managed to buy a house without a 6 figure income in the sought-after area of Sausalito in 2012, the year when Bay Area home prices were up 24.6%. And no, I did not offer all cash nor did I agree to remove contingencies. And I did not pay over the asking price, and I did not buy a fixer-upper. What it came down to was careful planning, an open mind, and good timing.
Plan Carefully
A down payment for a house in the Bay Area is likely to run into the 6 figures, so plan accordingly. Save for a few years. Depending on the house’s sales price and your income, you may need to put more than 20% down. That’s what happened to me. The bank was only willing to lend me so much based on my salary, so I ended up putting 30% down.
Also, try to get a pre-approval letter from your mortgage broker before you offer to buy a home. The most important part of a pre-approval letter is a stated loan amount. The loan amount will give you a good idea of how much you can afford. Another benefit of a pre-approval letter is that it can make your offer more appealing to the seller.
Have an Open Mind
Initially, I wanted to own a single family home, and planned to rent out a spare bedroom or two to help cover the mortgage. Easier said than done. I was outbid the first time I offered to buy a home. The second home I offered to buy got 16 offers. Even though I offered over the asking price, I still lost out. The third house I offered to buy was a short sale. The bank accepted my offer, but the inspection uncovered a mold problem that scared me away. “Maybe I should consider other types of property besides a single family home,” I thought. That’s when I found my current home, a charming Sausalito duplex overlooking a grove of Redwood trees. Sure, the cost of the duplex was higher than what I was comfortable paying for a single family home and the interest rates were slightly higher for an “income property.” But I would get my own unit and over time, the rent from the 2nd unit would catch up and eventually surpass the mortgage amount.
Have Good Timing
It’s a sellers market. If you like a house, make an offer as soon as possible so you can stave off the competition. In my case, I asked my agent to prepare an offer an hour after viewing the property. We gave the owner 2 days to respond to our offer. Fortunately, no other offers came in the meantime, and my offer was accepted.
Looking for a house in the Bay Area can be extremely daunting, frustrating, and time consuming. But the challenge can teach you to be more conscious of your finances. To save for my down payment, I learned to live more simply. Rather than splurging at the hottest new restaurant, I brushed up on my cooking skills, and ate in more often. Instead of taking a 10 minute cab ride home after a night out, I walked (and am healthier for it, too.) Small changes in your lifestyle can make a big difference. And once I landed my home and started moving, I realized how much stuff I have that I don’t really need. Who needs 38 handbags and 26 pairs of shoes? I don’t, but I had them, regardless. Living simply is a habit that I’ve carried on to this day. The benefits are abundant. I can really relax in an uncluttered home, I spend less time looking for things, and I have more space.
As you start your own journey, remember this: the experience can have many unexpected benefits, and there is a light at the end of the tunnel. Happy hunting!
