saving tips for buying a house in san francisco

Maximize Your Wealth in the Bay Area: Expert Tips for Buying a House in San Francisco Without Sacrificing Savings

Buying a home seems like climbing a mountain for several reasons. Saving from scratch means coming up with thousands of dollars. In a city like San Francisco, your conventional 20% down payment easily starts at $200,000 for a $1 million house. That’s a lot of money, and you might wonder: How do people end up buying a house in San Francisco?

In this post, we will go over some strategic ideas to help you buy a house in San Francisco. I will outline what works for my clients.

What’s Your Ideal Salary?

We can talk about saving money, but saving has an upper limit. According to one estimate, the median salary in San Francisco is $104,400. That salary also comes with high living expenses. For example, the average cost of a rental  is over $3,000.

If you’re not earning your ideal salary, focus your efforts on your career. Saving for a home will be easier if your career is going in the desired direction. It’s challenging to increase your income, but the effort is worth it. Think about increasing your annual salary, and don’t take your lifestyle to the next level. Do not fall into the trap of upping your lifestyle as your salary goes up. To prevent that, create another bank account and save all your income improvements in a separate account for your down payment.

How to Save for a House in San Francisco?

Many people find it hard to calculate every penny they spend. But you get a few rewards each year, like your annual tax refund and bonus from your employer. Saving that amount alone can contribute to a down payment 10 years down the road. A small, inconsequential action pays dividends in the long run. Imagine that forgoing a Starbucks a day can save you over $1,000/year.

Another idea is to write a detailed answer to these two questions:

How can you save an additional $500? Brainstorm the answer. Most people can benefit from downgrading their cars. If you’re a couple driving two cars, think of using one car. You will save on insurance costs and maintenance expenses.

Just using the local transportation system can eliminate your car insurance and repair costs. Selling the car can also contribute to your down payment. Mathematically speaking, a home is a better investment compared to a car. You won’t get an ROI if you sell a car after 20 years. Millionaires have even said that buying a new car is “the single worst financial decision” because it is an asset that goes down 30% immediately.

However, if you buy a house today in the Bay area, the home will appreciate in value after two decades. Eating at home and planning inexpensive vacations go a long way.

How can you make an additional $1,000? This question might require some research. Common options are freelancing on the side or putting in more hours at work. Do this without overworking yourself. Saving for a downpayment takes time. Be creative, and you can find some practical ways to make another $1,000 per month. You can also improve your current skill set, which will ultimately result in an improved income.

Payoff Existing Debt (Especially Credit Card Debt)

How much do you owe in terms of student loans, card loans, and credit card payments? Ideally, you should eliminate these debts before buying a house.

●  Pay off all the credit card debt. Carrying it forward each month can have a negative impact on your credit score. Credit cards have an average interest rate of over 20%

●  Pay off the student loan. Regardless of the amount, your student loan won’t be as high as your mortgage. You need to settle it first as a priority. Doing so will free up more space to save and pay for a house. If you can’t pay it off completely, make it a target to pay off as much as possible.

Improve Your Credit Score

A high credit score lets you borrow at an affordable rate. And the difference in savings is huge. Let’s say your current FICO score is 640-659 and you want to borrow $800,000. An example of a fixed interest rate is 7.59% (30-year loan). This makes your monthly mortgage payment $5,643.

However, if your credit score changes to 750, you can secure the mortgage with a monthly payment of $5,092. Your interest rate will go down to 6.57% from 7.59%.  Over the repayment duration, you will save over $198,452.

Go with a Short-term Loan

The problem with mortgage loans is that you always pay the interest rate first, and then a small amount is applied to the principal loan. The interest rate amount is directly proportional to the loan duration. That’s why a 15-year mortgage is always more affordable than a 30-year plan. The monthly payment is high, but you save on the interest rates. You build equity faster in your home, which is the main point of homeownership.

How Much Down Payment Do You Need?

The ideal situation is to save up 20% for the house, but it’s challenging for a couple of reasons.

You’re paying rent. How will you save money if you’re already spending $3,000 on monthly rent? If you take out a mortgage, a portion of that $3,000 will contribute to your home’s equity. In that scenario, it makes sense to take a FHA mortgage loan with 3.5% down. You will benefit the most by reviewing your credit score here. You will need a high credit score if you want to borrow with the minimum down payment.

Compare your current monthly rent with the future mortgage payment. Your mortgage payment shouldn’t make more than 40% of your total monthly income. It is possible to go up to 50%, but it starts to hurt your own savings because of unforeseen repairs like a roof leak. Compare the overall household income and decide if it makes sense financially to buy a house.

Buy an Affordable Home

Homes in San Francisco are expensive, but right now might be an ideal time to buy a house. It all depends on your current financial situation. However, it’s an easy option to invest in a house without saving up for a big down payment. There are websites like Fractional where you can invest together with your friends and buy a duplex or triplex. This makes housing more affordable, and you can even become an owner who gets monthly rental income!

Explore Down Payment Assistance Programs

The city of San Francisco offers several programs for first-time buyers. If you want to buy a market-rate property, you might qualify for down payment assistance.

I am Haley Zhao, your expert realtor in San Francisco. Are you searching for homes for sale in the San Francisco Bay area? Do you need guidance regarding home buying decisions? Do you need help planning for future real estate purchases in a few years?

Contact me for a free consultation, and we will go over your goals together.

 

 

 

 

Connect With Us!

If you're looking to buy or sell a property connect with us today!

How Can I Help You?

I would love to hear from you! Please fill out this form and I will get in touch with you shortly.
    (check all that apply)
  • This field is for validation purposes and should be left unchanged.

Leave a Reply

Your email address will not be published. Required fields are marked *

Call Me!
415-830-1423