How to Afford a House in the Bay Area (2024)

Below, the team at Prevu Real Estate has compiled a guide on how to afford a house in the San Francisco Bay Area.

How to afford a house in the Bay Area

• Set up a budget & save
• Improve your debt-to-income ratio
• Be secure in your career
• Hire a buyer's agent
• Save with a commission rebat

Set up a budget & save

This may be a no-brainer, but almost every significant purchase starts with a well-prepared plan.

If you want to buy a house in one of the country's most expensive real estate markets, you should set a realistic budget. Browsing listings with no filters in the Bay Area might yield pictures to pin on your wishlist, but if you want your goal to come to fruition, you should have a realistic idea of how far you can reach.

Your budget will ultimately depend on a few crucial factors: income, mortgage payments, debt-to-income ratio, and overall financial health.

We’ll cover some of these in-depth, but you should first crunch some numbers based on what you earn to see what monthly payment you can afford. This will help you find a target home price, determine the down payment you need to save for, and whether you can qualify for the loan.

With mortgage rates rising, your best bet to secure an appealing monthly payment is to put a large chunk of the home price as a down payment.

Improve your debt-to-income ratio

Your debt-to-income ratio, or DTI, will be a significant factor in determining if a mortgage lender will approve you for a loan.

The DTI ratio examines how your monthly gross (pre-tax) income compares to your recurring monthly debt. It follows a simple formula: add up all your recurring monthly debt payments, such as auto loans, credit cards, or personal loans, and divide the sum by your gross monthly income. The result is your DTI ratio.

Debt-to-income ratio = All Recurring Monthly Debt / Gross Monthly Income

Different mortgage products require specific ratios. As a good rule of thumb, a DTI ratio below 36% is considered an acceptable ratio for a conforming loan, and a ratio below 43% is sufficient for an FHA mortgage. The lower you can drive that percentage, the better your chances for approval might be.

The best way to do that is to pay off as many outstanding loans as possible. This will help reduce non-housing monthly debt expenses and increase capacity for future mortgage payments.

As you prepare for your home purchase, your mortgage broker will walk you through the calculation of your ratios and help you understand what loan size and mortgage payment you can afford.

Be secure in your career

Your salary and income are crucial when deciding your budget in the Bay Area.

Where homebuyers are in their careers is one of the most important factors when changing their living situation. In the case of affording a home in the Bay Area, a salary you can rely on in the long run will be key.

It may be tempting to visit open houses in Atherton after securing a new gig in Silicon Valley. Still, unless you’re already flush with cash, you must factor in a long-term commitment and a career that can help sustain it.

Just because you qualify for a mortgage doesn’t mean you can comfortably afford a house. That means ensuring you make enough to cover a monthly mortgage payment, insurance on the new home, closing costs, any renovations, and recurring upkeep expenses that might come along. Factor in other daily living expenses, and you have a thorough checklist before deciding whether your income can truly sustain a home purchase in such a pricey market.

A stable career with a sufficient annual salary is a necessary foundation for thinking about affording any house. Once you have that set, consider professional help to ensure you pay a fair price for your home.

Hire a buyer’s agent

Picture a scenario where you find a home that checks everything on your list but is just outside your budget.

It may be frugal to move on to another listing that is within your means, but there might always be a possibility that you can negotiate the price to fit your designated budget. This is where a buyer agent’s knowledge can be invaluable.

A buyer’s agent with local expertise can help determine the fairness of the home price based on price history in the area that only they may have access to. This way, you can approach a negotiation with factual data that might turn "a bit too expensive" home into your next house in the San Francisco Bay Area.

Conversely, your buyer’s agent can advise you when it may be more convenient to search for a better listing and find a better price. They are also there to guide you through the complicated paperwork involved in a home purchase.

Some buyer agents can also help you save when buying a home via a rebate.

Save with a commission rebate

There is one easy way to make your Bay Area home purchase more affordable, and that is to partner with a local agent that offers a commission rebate.

So what are commission rebates? In a traditional real estate transaction, the seller pays the listing agent a commission that is typically 6% of the sale price of a home, that is then split with the buyer’s agent. A commission rebate occurs when a buyer’s agent gives a portion of their commission back to the buyer they represent.

Prevu Real Estate offers the largest commission rebate in the Bay Area - unlocking significant savings for local home buyers.

For example, if you purchase a home for $1,400,000 with Prevu where a 3% buyer’s agent commission was received from the seller, you could receive up to 1% of your purchase price, or $14,000 in the form of a rebate.

That extra cash can help replenish your savings after a sizable down payment and closing costs or offset the cost for new furniture.

Interested in buying a home in the Bay Area? Browse listings and see how much you can save with Prevu’s Smart Buyer Rebate.

​​Prevu Real Estate, Inc. is a licensed real estate broker in California, license number 02134758.