Given the ultra-competitiveness of buying in San Francisco and the overall high cost of living in the Bay Area, it’s essential to have all your financial ducks in a row.
The Beginner's Guide to Buying a Home in San Francisco
It’s not just San Francisco’s views that are jaw-dropping. Many first-time homebuyers in the city—undeniably one of the most beautiful cities in the world—are surprised by the high prices and competitiveness of this market.
Beyond having to put down at least 20% on a home that easily may cost $1 million or more, many first-time buyers face other hurdles. In the San Francisco housing market, it’s common for homes to sell above their list price—meaning borrowers must be ready for bidding wars and winning sellers’ approval.
Here are some of the key aspects of buying a home in San Francisco that new buyers should prepare themselves for:
Competing with all-cash buyers
Due to the prevalence of all-cash buyers in San Francisco, a buyer must consider ways to make their offers more attractive to prospective sellers. In an intensely competitive market, a partnership with a personal banker can help you stand out from the crowd in three ways: reviewing your compensation beyond base salary to develop a compelling offer, speed of closing and the “golden ticket” of a trusted name in San Francisco.
When it comes to making a strong offer, a personal banker will take the time to understand your entire financial profile. For example, Restricted Stock Units (RSUs) are a common form of compensation, but homebuyers may experience challenges in using that income to qualify for a mortgage. At First Republic, we understand compensation packages that includes RSUs and have experience underwriting mortgages using RSUs.
Once your offer is accepted, it’s crucial to work with a lender who can process transactions in a timely fashion, so there’s no concern that the deal will fall through. At First Republic, your personal banker acts as a single point of contact throughout the process to help you stay on track, making sure that there are no unexpected financial hurdles or surprises that could prevent a quick closing.
Lastly, consider the reputation of your lender in your target location. At First Republic, we’ve worked hard over the years to build a reputation that’s rooted in trust and defined by exceptional service.
TICs vs. co-ops vs. condos
Buyers in the San Francisco market might encounter some unfamiliar options while they’re out house hunting. Tenancy in Common properties, or TICs, are generally older multi-unit properties that are jointly owned by all the individual unit owners.
While the price of a TIC may be 10 or 15% less than a comparable condo, they also carry risks. Many lenders will not provide fractional loans to TIC buyers, meaning all owners are listed on the same mortgage. If one owner can’t pay his or her share of the mortgage one month, the other owners are obligated to pay it. In addition, the city of San Francisco holds a lottery each year to allow a certain number of TIC owners to convert their buildings to condos and, as a result, raise the value of their properties.
Co-ops are similar to condos in that they both collect homeowner association dues for common areas and sometimes require approval on individual unit changes. However, co-ops have boards that approve buyers and financing, and buyers are given shares of stock, not outright ownership, in the co-op. This means that buyers who want the flexibility of owning their own property outright without the limitations and potential risks that come with TICs and co-ops will probably want to stick with condos or an even less complicated option, single-family homes.
Being financially disciplined
Given the ultra-competitiveness of buying in San Francisco and the overall high cost of living in the Bay Area, it’s essential to have all your financial ducks in a row. Having your 20% down payment and at least one percent of the total expected purchase price for closing costs set aside, for example, can ensure you’re ready when the right home comes along.
Thinking beyond closing, try to keep at least 12 months’ worth of expenses, including your mortgage payment, payments for property taxes and homeowners insurance, in a separate account so you know you have the financial resources to pay for your home no matter what happens. While other lenders may only require 3 to 6 months’ worth of expenses, it’s important to maintain a “rainy day” fund, to weather any unexpected maintenance or renovation costs.
House hunting in San Francisco can seem daunting to even the most seasoned homebuyer, but you’re not alone; a dedicated personal banker can guide you through the process, with your big-picture goals in mind, so you can reach your next milestone.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use.