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First-Time Home Buyer: Affording a Home in the Bay Area FAQ

Updated: May 31, 2020

Are you getting ready to buy a home? Congratulations on this exciting journey to homeownership! I know that buying a home comes with making many important decisions - and from that, having many questions! Here are a few frequently asked questions I've received about the financial side of the home buying process.

Bay Area home prices are constantly rising. It's so hard to save up for a 20% down payment. How can I afford to buy a home here?

As a first-time home buyer, consider taking advantage of first-time home buyer programs where you can put as little as 3.5% down for a home. Some first-time home buyer programs do require you to buy PMI (private mortgage insurance). For many buyers, it may be more advantageous to pay for PMI as a trade-off for a smaller down payment, rather than continuing to rent and struggling to save up for a 20% down payment in a rising real estate market. In addition, you can always refinance later down the road to reduce your monthly payments. Plus, PMI costs are not forever. Once you've reached 20% equity in your home, PMI costs go away! 😁

Do I need a loan pre-approval letter prior to looking at homes?

You don't need one, but I highly recommend having one so that you can shop for homes in your budget. In addition, it's good to have the pre-approval letter on hand as many homes have an offer due date. You don't want to miss out on making an offer for a home you love, just because you didn't have the loan pre-approval letter ready! A pre-approval letter is free (aside from a $30 fee for a credit check) and only takes 24 hours to process.

What kind of documents do I need to submit for a loan pre-approval letter?

Most recent 2 years' W2, most recent 2 years' tax returns, last 1 month's pay stubs, last 2 months' bank statements, and a copy of your driver's license.

What costs are there that go into buying a home?

The down payment is a given cost. Be sure to expect closing costs as well - these are the costs needed to finalize the mortgage. Closing costs can include homeowner insurance, property tax, prepaid interest, recording fee, home inspection fee, and home appraisal fee. If you wish to reduce your interest rate, you may also choose to buy discount points. Everyone's loan situation is different, so talk to your realtor and your mortgage loan officer for the best guidance.

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