Buying your first home is an exciting life experience. It’s the chance to explore the beautiful Bay Area from a different perspective and, hopefully, start a new phase of your life as a homeowner.
The best time to buy, is when you are ready, have the financial resources to do so, and decide you’re ready to own a home.
The best way to move forward: there are a lot of things to consider, and smart planning and solid preparation will make the process go more smoothly.
Here is a checklist of things to keep in mind to help you focus your thinking and search.
These 10 points are important considerations, for the Bay Area, especially with it being a competitive housing market.
1. Decide how much you can realistically afford
Use a home affordability calculator to help you target your search. The calculator figures in a number of factors, including your income, debts, the location of the search, and how much money you can put as a down payment. You’ll also be able to determine your monthly mortgage payment and other costs of homeownership, including closing costs.
2. Find out your credit score
This will be a determining factor in the mortgage rate you end up with (a higher credit score means a lower interest rate). You can get your credit score from one of the three credit bureaus (Equifax, Experian, or TransUnion), and you’re entitled to one free credit report annually. Your bank or credit card company can also help you with this.
3. Calculate your Debt to Income (DTI) ratio
San Francisco mortgage leaders use this to evaluate the mortgage amount they can lend you. (A DTI of 36% or less is considered to be safe.) To figure out your DTI ratio, simply divide your monthly debts by your gross monthly income.
4. Get pre-approved
An important early step in the home-buying process is to get a preapproval letter for a mortgage. This will determine how much money you can borrow to purchase a home and it shows you’re serious about working with a lender to finance the transaction.
5. Research the various types of loans
Before you apply for pre-approval, it’s important to understand the types of home loans and which one may be best for you. Your options might include:
Conventional mortgages
These are not backed by a government agency and are available from private mortgage lenders in California and subject to their guidelines, down payment requirements, credit score criteria, and interest rates
FHA loans
The Federal Housing Administration grants these loans to borrowers with lower credit scores and higher DTI ratios.
VA Loans
These are available for veterans and issued by the U.S. Department of Veterans Affairs. They generally require no down payment and have lenient credit requirements.
6. Think beyond the 30-year fixed-rate mortgage
While this is the most standard type of mortgage and offers a number of benefits, (most notably the ability to maintain the same monthly payment for the life of the loan, which makes it easier to plan and budget), it may not be your best option, especially when interest rates are higher. Research and talk to your loan officer about other available options (15-year, adjustable rate mortgage, etc.) and the pros and cons of each.
7. Do some preliminary neighborhood research
Read up on different residential areas and talk to others whose opinions you value, focusing on the factors that are important to you (schools, commute distance, access to transportation, shopping options, etc.). Drive by and visit the neighborhoods you’re considering at different times of the day to get a feel for the activity, traffic, and other factors that will impact quality of life.
8. Collect all the necessary paperwork
The mortgage application and approval process will require you to submit a lot of documentation, including paystubs (or tax returns if you’re self-employed), bank statements, background on gifts if they will be a source of funds for the home purchase. etc. Make sure you have all of these ready to go once you find a property you want to put an offer on so you don’t delay the process.
9. Take a look at some other considerations – HOAs, sustainable tax breaks, solar energy
Depending on the type, age, and location of the property you end up buying, there may be other factors to keep in mind, and it’s important to be aware of them before you start your search. One important factor to weigh is whether the home you’re considering would require you to join a homeowners association (HOA). HOAs are private organizations that oversee the management of some residential communities (including planned neighborhoods, townhouses, and condominiums).
Living in an HOA community usually involves paying additional fees, which cover things like trash pickup, landscaping, maintenance, security, gym, pool, common areas, etc.
You’ll also want to consider the energy efficiency of the home you buy and, if needed, things that will need to be done to make it more energy efficient, including installation of solar panels, new insulation, LED lighting, etc. The recent Inflation Reduction Act’s Efficient Home Improvement Credit allows homeowners whatever their income to claim a tax credit for up to 30% of the cost of qualifying home improvements, up to $1,200 per year. (A credit is a dollar-for-dollar reduction in your tax bill.)
10. Find a real estate partner you can talk to and trust
The choice of a real estate agent is particularly important for first-time homebuyers, who tend to need more guidance on all of the details involved in finding and purchasing a home. An experienced real estate professional will not only help you with your search, but can offer advice on finding an escrow company, lender, home inspector, contractors, and a variety of resources you may need.
Working with a real estate agent is a standard practice. According to the National Association of REALTORS®, 87% of buyers and 90% of sellers use a real estate agent/broker in San Francisco.
Of course, I’d welcome the opportunity to be your real estate agent and help you find the perfect place to call home. I’m a San Francisco native and I know and love the Bay Area. I also have long-standing relationships with lending companies and a range of resources for home buyers and sellers. Plus, I enjoy what I do the chance to meet new people and help them find a place to call their own.
I look forward to getting to know you and the chance to work together.
Please reach out at any time.
Please reach out at any time.