Have a Plan for Your Home Purchase in the Bay Area
While purchasing a home in the Bay Area requires a bit more cash than other California cities, it’s well worth the additional cost. You’ll enjoy beautiful weather, a variety of cultural events, diverse people, thriving career opportunities, and easy access to beautiful Northern California.
As long as you have a great real estate agent on your side to help you make the best investment and home choice for the stage in your life, you’re ready to start planning. Purchasing a home is the biggest investment you’ll ever make so these six steps are essential to a successful closing day and beyond.
1. Saving for a Down Payment and More
At first glance, you might think money for a down payment is all you need, but if you exhaust all of your savings on the down payment, you won’t have a financial cushion for closing, repairs, and renovations. You should have between 10% and 20% of the purchase price saved for a down payment. Then, you also need about 3% of the purchase price to cover closing costs, prorated property taxes, and insurance items. Next, you should save the cost of about 3 months of expenses in case something happens that drains your savings, you can still pay your bills. Finally, don’t forget to factor in the cost of moving.
2. Getting Preapproved for a Mortgage
If you can’t pay cash for your home, then you need a home mortgage loan. A lender can prequalify you for a loan after a quick look at your income, but getting preapproved is a more involved process. You should start the preapproval process as soon as you know you need a loan because it makes you look like a serious buyer and could be the difference between you getting the house or not.
3. Understanding Mortgage Options
When it comes to getting a mortgage loan, it’s important to know what kind of agreement you’re getting into. Here’s a look at the two most common types of loans:
Fixed-rate conventional mortgage: Your interest rate won’t change throughout the life of the loan. These loans typically come in terms of 15 years, 20 years, or 30 years.
Adjustable-rate mortgages: Your interest rate fluctuates depending on market conditions. This is a good option for a short term purchase as ARMs usually start at a lower interest rate.
Check out my mortgage calculator and play around with the numbers to see what kind of monthly payment you can afford. It’s a good rule of thumb that your house payment should be 25% or less than your total take-home income. You may also be surprised to find that a mortgage payment is often the same as rent in the Bay Area.
4. Finding a Knowledgeable Real Estate Agent
Every neighborhood in the Bay Area has a different vibe and different things to do. Like nightlife? Check out North Beach. Have a family? Maybe Bernal Heights is better for you. A real estate agent who knows the area should carefully assess what you want and narrow your house hunt.
If you’re searching for a home with a spouse, I always recommend making separate wishlists and then coming back together to see what aligns. All of the similar items become must-haves, and the others are bonuses.
5. Making a Sound Investment
Before you settle for a home that checks almost everything off your list, consider a few things about it.
Decide what you want to change in the home to make it perfect. For example, painting the walls is a lot less expensive than adding an extra bedroom. Decide what’s worth the compromise.
Pay attention to home values in your area. If they are rising, then you can purchase a less expensive home on the block, use the extra money for improvements, and eventually resell for a higher price.
Look into school districts in the area, even if you don’t have kids. If you decide to resell your home, a good school district is usually important to most buyers.
6. Submitting an Offer
Now that you’ve done your due diligence preparing for your home purchase, it’s time to submit an offer. This is when being preapproved for a loan and having a good real estate agent on your side comes into play.
The housing market in San Francisco is competitive so there’s a chance you might enter into a bidding war with another party. Your real estate agent can help you decide what’s worth a compromise, when to hold firm, and when to up your offer.
Learn More About How to Buy a House
You can never be too prepared for your home purchase! I post weekly here about real estate trends, buying and selling tips, and the San Francisco lifestyle. Sign up for my monthly newsletter to make sure you never miss a beat.
