How to Save For a Down Payment in San Francisco
Saving for a down payment is hard, especially in a city like San Francisco. According to the California Association of Realtors, the average San Francisco home sells for $1.63 million, which means a 20% down payment would be $326,000.
While challenging, saving for a down payment is achievable if you lay out a timeline, create a savings plan, and cut back on some extraneous expenses. Here are the steps I recommend:
Start With a Down Payment Savings Goal
Having a clear picture of how much you need to save total and each month will help you stay on track. If you can’t pay cash for your home, you should aim to put 20% down to avoid private mortgage insurance. So, if you take 20% of the average home price in San Francisco, you know you need to save about $326,000.
Next, you need to figure out how much you can afford to pay per month. Best practice says to allocate no more than 25% of your take-home income to cover your house expenses, including principal, interest, property taxes, homeowner’s insurance, and PMI.
Finally, consider what loan term is best for your financial situation. A 30-year mortgage is more popular and will result in a lower monthly payment, but a 15-year mortgage will cost less long-term.
Use the mortgage calculator below to play around with different down payments and loan terms to find a monthly payment that works for you.
Cut Unnecessary Expenses From Your Budget
Once you know how much you need to save, you need to calculate how much time saving it will take. Let’s continue with the $326,000 example from above. If you already have $100,000 in savings, you only need to save an additional $226,000. If you’re already living or looking to buy in San Francisco, then these numbers shouldn’t come as a surprise.
You can always take a side job for additional income, but for this article, we’re just going to look at some expenses you can cut out of your budget to save money based on what the average American spends.
Cancel your gym membership: $60 per month
Stop eating out so frequently: $230 per month
Don’t spend as much on clothes: $150 per month
Switch to generic brands at the store: $100 per month
Trade cable for a streaming service: $100 per month
Cutting out these expenses could save you up to $640 per month, or over $15,000 over two years. You can dive even deeper into your budget to uncover other expenses that could make or break your down payment savings plan.
Redirect Your Retirement Savings
Spending a couple of years putting your retirement savings toward a down payment instead can help you save for your down payment faster. After all, you’re saving for a nice retirement, and having a home is part of that goal.
The average recommendation for retirement savings is 15% of your income. Therefore, if you’re making $100,000 per year, you’re saving $15,000 for retirement. After two years, you’ll have an additional $30,000 for your home.
Start Planning Today
Home prices are only going to increase, so the sooner you start saving, the better. Here are a few last-minute things to consider:
Pay off your debts before you start saving for a down payment. If you have outstanding debt, you are less likely to qualify for a mortgage loan.
Find a reputable lender. I also wrote a blog post about how to navigate your lender search.
Meet with a real estate agent who knows your locality and can help you find a property that suits your needs, budget, and future.
If you’re serious about saving, I have a downloadable spreadsheet that can help you visualize your goal, timeline, and progress. You can access it for free here.
