Tips for First Time Home Buyers in the San Francisco/San Jose Area

Posted on May 12, 2008
Filed Under Shopping, Tips |

We finally bought a home in the San Francisco Bay Area (actually in the South Bay) after years of searching and overcoming sticker shock, and thought we’d share some of our “learnings” during this process.

School district (as measured by API scores) matters a LOT! Areas with school districts were not affected much by the housing crisis, and in most places the homes went up in price over the last year or so.
Again, homes in good school districts are very desirable, particularly by Asian families who are very education-focused. And there are many Asian families in the Bay Area! The 3 homes we bid on each had at least 10 bids on them! One of the homes we bid on in the 95130 zip code listed for $779K, and ultimately went for $852K without a home inspection contingency! I would call that somewhat crazy!!

Homes in not so good school districts did not seem to be selling so well, although they also did seem to appreciate almost as well as everything else. We saw some homes in the 95134 zip code which is very close to many high tech companies which did seem to sell well, but the sellers all had kids that were about to enter kindergarten…
It is hard to find a reasonably priced home where there isn’t noise from planes, trains or automobiles!
A nice neighborhood with a safe, family-centric feeling is somewhat hard to find, although we did find it in Willow Glen (95125). Plus, Willow Glen passed the “have my mother walk around alone at 10:00 p.m. without freaking out” test!
Go visit any home you like at night, and in the mornings. Check out how many cars are parked on the road and the overall noise level. Check the traffic at different times of the day.
Neighborhoods matter. Homes in good neighborhoods should remain desirable. We saw some homes in less desirable neighborhoods early in our home search, which we would absolutely not consider now.
A well priced home in a good neighborhood will go fast, usually within a few days! Be prepared to act very fast! It took less time for us to buy a home than a toaster oven. Yes, this is crazy, but is very reflective of the market in the Bay Area.
Understand your mortgage! Stay away from negative amortization loans or prepayment penalties. Definitely talk to a loan consultant at a credit union. They are non-profit and will explain all your options to you.
Get preapproved, and really figure out how much you can afford. Use the ipmt() function in excel to determine how much interest you will be paying, and plug those numbers into a tax computation tool like Turbotax (along with your estimated property taxes) - this will help you figure out what your real payments will be. This is exactly what we did, and we are completely aware of what the financial impact of the mortgage will be.
Check with credit unions when shopping for your mortgage. We just got our mortgage loan through Patelco, and it was a pretty stress free experience, and we did most of the paperwork through email using scanned documents (your office copier probably has the ability to create pdf files from paper documents). Plus, credit unions normally do not sell your loan.
Check for asbestos! Some older homes do have it.
If you’re looking for a home with a pool, consider what it will cost to maintain it. It may not be cheap!
If you’re looking at a condo or townhouse, don’t forget to consider the HOA fees. These fees are not tax deductible. Very roughly, at today’s loan rates, every $10,000 you borrow will cost approximately $70 a month (which may turn into $40 or so after tax deductions assuming a 33% tax bracket). Therefore, a HOA fee of $300 translates into about $70K of loan value - which means (for this example) a condo for $500K may be equivalent to a house of $570K. These numbers aren’t exact; they’re just meant to illustrate the point.
Don’t forget property taxes - which are over 1% in the Bay Area. That is quite a chunk of change. I’m not entirely sure about this, but if you expect to be hit by AMT (alternative minimum tax), not all of this will be tax deductible!