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Archive for September 2017

Dear San Francisco Renters

Dear San Francisco Renters

Dear San Francisco Renters,

You may be closer to affording a home than you think.

Are you fed up with handing over a third (if you’re lucky) of your salary to someone else every month? What about having to do that for the next 5, 10, or 15 years? So why not buy a home instead, after all property prices in the Bay are just so cheap… OK that’s probably stretching the truth a lot but you might be surprised at how close you are to affording your own home in the city.

Paying rent is wasted money

What are you currently paying for rent? $1500, $2000, over $3500 per month? Think about how long you’re planning on living in the city, it’s not a stretch to calculate that you could easily waste $240,000 on rent in the next ten years. You may think that’s just the price you have to pay to live in a city as amazing as San Francisco and maybe that’s one way to stay in the city, but it isn’t the only way.

What’s the alternative?

Buying a home—before you laugh, choke on your drink, or just stop reading, give me a second to explain. I know property prices in San Francisco and the rest of the Bay are kind of crazy but there are ways to make home ownership affordable. Let’s do a little math, I promise you won’t need a math degree to understand where I’m going with this! Say you’re currently living in a two-bed apartment with a friend; between you it’s not unlikely that you’re paying $4700. Now what if you were to purchase a two-bedroom property, it’s going to be way more expensive than renting, right? Actually no, between you and your friend you could purchase a property for around $900,000 and still be spending a very similar amount every month and that includes the mortgage payments, property tax, and home insurance. It’s crazy to think that what you’re paying on rent could actually pay for you to live in your own home with a friend and start to build equity in a property.

Beat the biggest barrier to buying a home by quitting your avocado toast habit…

…if you want to wait hundreds of years to buy your own home.

For many people living in San Francisco the biggest barrier to buying a home isn’t affording the mortgage, after all you’re probably already paying that much per month in rent. It’s actually affording the down payment on a property. As we’ve already mentioned property prices in pretty much all of the Bay are high but let’s look at what down payment you would need to buy a $900,000 home. A lot of people still think that you need 20% of the property value to secure a mortgage, so $180,000 on a $900k home. That’s a lot of avocado toast you’d have to give up. In fact we just ran the numbers and you could probably save that down payment in around 173 (yes we did the math) years if you start today. You might want to get started ASAP.

While a 20% deposit might open some additional mortgage doors it’s actually not a requirement anymore. In fact, many mortgage companies will let you put down as little a 5% on a property. So your down payment needs have already dropped from $180,000 to $45,000. This is where buying with a friend can make a huge difference.

A quicker method than just quitting that expensive toast and latte habit

Forty-five thousand can still feel like an overwhelming amount of money to save , but you’re forgetting about one of the main points of this article—buying a house with a friend, family member, or partner. That $45,000 can now be split between the number of co-buyers, which means for the case of our example you’d only need $22,500 each to pay the 5% down payment on a San Francisco home. If you moved in with 2 friends that drops to $15,000. Seems much more achievable than the traditional $180k figure, right?

Finding an affordable mortgage while protecting your finances

To buy a house with friends and not need a hefty down payment you’ll need to look for mortgages that offer a 5% down payment and don’t require you to take out private mortgage insurance. You’ll also need to have a legal framework in place that protects the rights and the finances all of the co-buyers.

You can have you toast and eat it

With some smart mortgage shopping and professional help to get your co-buying agreement set up you’ll be buying a house much sooner than you expected. Not one slice of avocado toast need be sacrificed to buy your first home!

Key Facts About Debt-To-Income Ratio

Key Facts About Debt-To-Income Ratio

Key Facts About Debt-To-Income Ratio

By Evelyn Olmedo

The lender asks for your debt-to-income ratio (DTI) in order to determine whether you qualify for your first mortgage loan. You blank out. What is the lender asking you?

The answer:

To calculate your monthly debt divided by your gross monthly income.

DTI measures your ability to pay off your future mortgage loan in addition to the monthly expenses you incur. For example, Sally’s monthly expenses include: $200 for her car loan, a $150 student loan repayment, $60 for her phone bill, $8.99 on Netflix, and $5.99 for Itunes music, this equals $424.98. Now divide $424.98 by $2,400 (monthly gross income), this gives a debt-to-income ratio of 17%. If your DTI is lower than 33% then lenders will consider you a lower risk.

Why is Debt-to-Income Ratio Important?

First time buyers should earn enough money to be able to afford additional debt such as a mortgage loan. Your DTI will help lenders determine what level mortgage you can afford. There are two types of DTI calculations that may be used by a mortgage lender, these are front-end and back-end debt-to-income ratio.

Front-End Ratio: The measurement that represents the ratio of your monthly gross income to monthly mortgage payments. You can calculate this by dividing your monthly housing expenses—such as the mortgage payment, property tax amount, and home insurance premium—by your monthly gross income. Normally, front-end is used for government loans such as VA or FHA mortgages.

Back-End Ratio: Most lenders will check your back-end ratio because it gives a clearer picture of your personal finances including all monthly expenses such as student loans, car loan and credit card debt. Remember Sally, we used back-end ratio to determine how much she can afford for a mortgage loan.

Understanding How Your DTI Affects Your Mortgage Application

Advantages Of A Good Debt-To-Income Ratio:

Mortgage lenders favor a lower DTI because you can easily pay off your loan as opposed to a higher DTI, which forces you to live paycheck to paycheck. DTI helps you understand how much of your income is tied up in monthly expenses so you can make smarter decisions about your personal finances.

Disadvantages Of A Bad Debt to Income Ratio:

You have more debt than you can afford. A mortgage lender will see red flags if a large percentage of your income s tied up in monthly expenses. Borrowers with high DTI are high risk to the lender as it may be difficult for them to make monthly mortgage payments. People with bad DTI will struggle to get a mortgage application approved.

What Are Your Options If You Have A Bad Debt-To-Income Ratio?

Your main options are to improve your personal finances by reducing your debt, increasing your income, or creating a better budget to save money. You could also consider using a cosigner, which may be a friend or family member, to cosign your mortgage loan and help you meet the qualifying requirements. A qualifying cosigner must demonstrate a sturdy income, excellent credit score, and a low DTI. The benefit of using a cosigner is that it gives you the opportunity to buy a home now, without improving your DTI. However, if you need to use a cosigner to get an approved mortgage you should really consider whether you’re in a financially strong enough position to afford a mortgage.

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The ultimate guide to buying a home in San Francisco

The ultimate guide to buying a home in San Francisco

The Ultimate Guide to Buying a Home in San Francisco

Buying a home in San Francisco is both exciting and nerve wracking, after all you’re potentially buying a million dollar home in one of the best (or THE best depending on who you ask) cities in the world. It’s also a unique experience that will break many of the home buying ‘rules’ you’d use anywhere else in the US. Whether you’re currently renting in SF and looking to buy a home with family or friends, or completely new to the area, our home buying guide will help you understand the San Francisco market and buying process from start to finish!

Step 1. Saving For a Down Payment

If you’re already in the financial position to buy a home in SF and have your down payment in place you’re ready to jump ahead to the next section.

If not then stay with us, you might be closer to owning a home than you think!

For many people renting in the city, owning a home can seem a long way off or even impossible due to the down payment requirements, even if you’re earning over $100k. After all, with property prices easily in the 7-figure range you could be looking at a down payment of $200,000 if you take the traditional route of putting down 20% of the property price. How long would it take you to save $200k while living in a city with crazy rent prices like SF? Probably many years. So what’s the alternative if you’re fed up of renting and giving your money to your landlord every month?

Have You Heard of Co-Buying?

Co-buying has been common in Europe for many years. It’s basically where 2 or more people choose to purchase a home together. To co-buy a home you don’t need to be married or even in a relationship with the other buyer/buyers. In fact, it’s pretty common for friends to purchase a home together as an investment instead of wasting money on rent. This means that the mortgage and all home costs are split between all buyers, which makes that million dollar SF home more affordable. One of the many great benefits of co-buying is that it significantly reduces the amount you need to save, as the down payment will be split between all buyers.

Let’s use the $1,000,000 property we used earlier as an example:

20% of $1,000,000 is $200,000 needed for a down payment.

Say two people decide to purchase a home together, the down payment then gets split in two, which is $100,000.

Still seems pretty high, huh?

Well, what if our buyers were financially savvy and shopped around for mortgages that don’t require the traditional 20% deposit?

Hint: There are many of these available.

They find a mortgage that only requires 10% down. On our $1M example house that’s $100,000, which then gets split between our two co-buyers, so $50,000.

By buying a house with a friend and shopping around for the best mortgage deal we’ve reduced the $200,000 needed for a down payment to $50,000.

So, how long would it take you to save $50,000? Or, $33,333 if you purchased the home with two co-buyers?

5 Steps To Help You Save For a Mortgage

There are a few simple lifestyle hacks that can help you save for your mortgage down payment faster. Try these easy changes to boost your bank balance:

  • Track your spending

Do you often wonder where your money goes each month? It’s easy to lose track of what we’re spending our money on if we don’t monitor it closely. Download a budgeting spreadsheet to track your monthly spending habits, it’s a great way to keep an eye on your spending and establish how much you can afford to save each month towards a mortgage down payment.

  • Check your monthly subscriptions

How many monthly subscriptions do you pay for but rarely use? Check through your bank statements and cancel anything that you haven’t used in the last couple of weeks. Be brutal, every dollar is a step closer to owning your own home and never having to deal with annoying landlords ever again!

  • Create a budget

Use a spreadsheet to establish a monthly budget. Set aside a certain amount for each area of your life like necessity costs, lifestyle expenses, and spending on luxuries. Necessities include anything that you have to pay for each month including rent and utility bills. Lifestyle includes anything that isn’t a necessity but you’d find it hard to live without. Luxuries are things that you could sacrifice if you needed to. Remember that every cent that you don’t spend is getting you closer to your own home.

  • Make the most of cheap free activities

Entertainment doesn’t have to cost money, especially in SF where there is always a thousand free activities going on. One of the amazing things about looking for alternative entertainment is the new experiences you’ll have that you would never have experienced if you’d stuck to your existing routine. You’ll also be saving money doing them. It’s almost like you’re being paid to have fun…

  • Take on a side gig

Top up your savings with money from side gigs. Search Craigslist ads, drive for Lyft, do whatever you need to do to get some extra cash flowing in.

Step 2. Get Pre-Approved

Not got a pre-approval letter or a full cash offer? Your bid is going to the bottom of the pile. Right now San Francisco is a seller’s market, meaning they hold all the power and you need to make your bid as attractive as possible. This means that you’ll be bidding over the asking price and you’ll need proof that you can afford the offer you’re making. Pre-approval proof comes in the form of a letter from your mortgage provider saying that they’re willing to give you a mortgage that covers the offer you’re making on the house. Sounds like a hassle, right?

It’s actually pretty quick and easy to get a pre-approval letter if you work with an experienced mortgage broker who can guide you through the process. Here’s what you’ll need to get pre-approved:

  • The social security numbers for anyone who will be named on the mortgage. You’re providing this as proof of your ID and so the lender can track your financial history.
  • Employment information for all borrowers. You may need to list all employers going back two years. Have their name, address, and phone number on hand to make this process easier.
  • Proof of income for everyone who will be named on the mortgage. You’ll need at least your last two pay stubs to show proof of recent income.
  • Self-employment information. If you’re self employed you’ll need to provide proof of you income over the last few years. This may include business balance sheets and business tax returns for the preceding few years.
  • Tax documents for the last two tax years. This includes both W2s and tax returns. The lender will use these to verify your annual income over the last two fiscal years.
  • Current address and list of past addresses for the last couple of years. Basically the lender will want to know where you’ve been living for the previous few years.
  • Information about your current finances. Lenders will want to know how much cash you’ve saved to pay for a down payment and any closing costs. You’ll need to show proof of this so you’ll likely need to show statements for all accounts in your name.
  • Information on your existing debts. Your mortgage eligibility is based heavily on your current debt-to-income ratio. Which means how much you’re earning vs. how much you’re paying off on your debts every month.
  • Information on your monthly spending habits. The lender needs to know that you can afford to pay your bills every month, especially once you add in a mortgage. They’ll need to know about all of your monthly bills including student loans, rent, phone bills, etc. One important thing to remember is that many lenders will base this on the minimum payment amount, so even if you have $10,000 on a credit card they’ll only count the $25 minimum payment as a monthly debt.
  • Declaration of cash gifts. Are family or friends helping you out with the down payment? Then they’ll need to provide a letter declaring the cash as a gift that doesn’t need to be repaid.

Improving Your Buying Power

As mentioned above your mortgage approval amount is based on your debt-to-income ratio. To increase your buying power you should work on reducing your existing debts. Whether you get cash gifts from family, sell things, or take on an extra job you should do whatever you can to reduce your existing debt amount.

Know Your Limits

There’s two things you need to think about with any mortgage: one, what amount you can get approved for and two, what amount you can realistically afford to pay every month. Over extending yourself financially is one of the biggest mistakes you can make. Find the amount that fits both your eligibility and monthly budget and you’ll know your buying limit.

Choosing a Lender

Not all mortgages are made equal, in fact there are some key differences that can have a huge impact to your future as a home owner and seller. Work with a mortgage broker who can help get you the best deal on a mortgage that fits your needs now and in the future. Some key differences to look out for include:

  • The mortgage length
  • The interest rate terms (fixed vs. variable)
  • Whether the mortgage can be transferred (is it assumable?)
  • Deposit amount required
  • Requirement for private mortgage insurance
  • Whether the mortgage is payable on sale
  • What fees are included
  • Equity building or interest only
  • Jumbo loans vs. conforming loans

Ask your lender how these differences affect your monthly mortgage payments, how you build equity, and what happens when you sell your share of the property.

Get a Local Realtor

The San Francisco real estate market is not for the do-it-yourselfer. In fact, if you want to buy a home in the next 12 months then you’re going to need professional help. Houses in San Francisco are like gold dust, they appear pretty regularly but someone will swoop that prized nugget out from under your feet before you’ve even had chance to see it. Remember, the local property market is as unique as the city itself with limited supply helping hold prices firm.

Step 2. Choose A Location

Influencing Factors

A big part of your housing hunt will be about deciding where in the city you want to live. One of the most amazing things about SF is how different each neighborhood is, so choosing your home’s location is a big deal. And let’s face it…Karl The Fog is a little more involved in some neighborhoods than others. Your location search will be influenced by a few key factors: price, commute time, neighborhood feel, proximity to outdoor space, shuttle routes, and anything else that’s important to you in your home’s location. You should also think about how long you want to live in the property and the future you see for yourself in SF. Are you planning on staying long enough that you could buy in an up and coming neighborhood and see big profits by owning the home for a few years? Or are you looking for something more short-term?

Be flexible and think outside of the box. Public transit doesn’t just come in the form of Muni (insert sigh of relief), think about ferries, ride shares, shuttles, bikes, big wheels…

Step 3. Find a Home

30 years from now you could be telling your grandchildren about the time you bought a house on Craigslist. I’m totally serious here. When in SF you have to think like a San Franciscan. Anything goes. Don’t just rely on the big websites to help you find your home. Work with your agent and send them any leads you come across, no matter how far fetched they might seem. Currently renting a property? Ask your landlord if they’ve considered selling. Ask friends if they’ve heard of any properties that might be coming onto the market. You might be surprised how far your personal connections can get you.

Think About Your Potential Deal Breakers

It can be easy to get swept up with property buying fever, so before you even go to your first open house you need to think about things that would be potential deal breakers. Think about repairs you’d be happy to undertake vs. ones that would rule a property out. Think about location, is there anything that would stop you buying a home? How about existing tenants, would you be ok with going through the expense and stress of evicting the current residents?

Start Thinking of Open Houses as Your New Hobby

The housing market is competitive, which means you’ll be attending open houses with many other potential buyers. Ask questions, many questions. Find out how many disclosure packets have been given out. This is the information bundle that lists every known issue with the property. Interested buyers will want one of these, so it can give you a good idea about the potential number of offers a property might have. Find a property you like? Contact your realtor ASAP; they’re your property buying wingman who’s going to help you close the deal.

Making An Offer On A Home

Facing the competition can feel like a scene from the hunger games. Want to park your car at an open house? Better get there five hours early or be willing to sacrifice your first-born.

Making an offer on a home in San Francisco isn’t like it is in many other areas of the US. Most properties will receive numerous offers that are well over asking price. Understanding what offer you’ll need to put in to get your new home is a key step in buying a property. This is where your realtor can really make a difference. Using a local realtor who understands the market and can work on your behalf can be the difference between being the best offer and just missing out on your dream property.

Hot tips:

  • There’s almost always an offer deadline so you’ll get your answer pretty quickly
  • Things don’t last longer than two weeks…if they do you might want to run far, far away
  • Your realtor is your best friend
  • Act fast
  • Find ways to make your offer stand out

Step 4. Close The Deal

After Your Offer is Accepted

Congratulations, you just received the right to get the house inspected and fill in many, many pages of paperwork! But really, this is where things start to get exciting, after all you could be as little as a few weeks away from getting the keys to your SF home!!! So what is this whole escrow thing? Basically, it’s the period where the home gets inspected, valued, and all of the serious paperwork gets completed.

To start you’ll need to pay a deposit on the property of up to 3% of the accepted offer price. This money is to show the seller that you’re serious about buying the home. The deposit will count towards the funds you use to buy the property when the sale goes through. Once the money is transferred to an escrow account managed by the seller’s attorney you’ll be able to have an inspector and appraiser visit the property. The inspector will check the house for any problems, both major and minor! Depending on the results of the inspection you may be able to renegotiate the price, but in the Bay Area you’ll need to keep in mind that the seller probably has a backup offer waiting. Ask your realtor for advice on what to do if your inspector finds any significant problems. The appraiser will value the house and give the information to your mortgage provider who will need to know that the amount they are lending is less than the value of the property. This is to protect both the financial interests of the lender and you as a borrower.

You’ll also want to get all of the necessary mortgage paperwork in place ASAP to make the closing process move as quickly as possible.

Closing Day

Closing day can feel overwhelming, especially with all of the paperwork you’ll need to sign, but don’t worry, it’s actually a super simple process. At closing you’ll meet with the appropriate parties to sign all of the paperwork. The people who attend can vary but could include your realtor, your attorney, the seller’s attorney, the seller’s realtor, and the seller. You’ll also need to pay the closing costs, which can include mortgage fees, property taxes, property insurance, and PMI. You’ll also need to have the full down payment amount paid by closing, to do this you’ll either need to have a certified check with you or have the money wire transferred in advance. Then there’s just one thing left…getting the keys to your new home!

Our Final Advice

Stay strong and persistent and you’ll find your San Francisco home.

Your future home is out there! Even when it seems like you’ll never find the right property




Yes the SF real estate market is tough and competitive but that doesn’t mean that you’ll never find the right home. In fact, who’s to say that you won’t be the most qualified and determined buyer to make a bid on the next house you see? Have faith and follow your realtor’s advice. Your home is out there!

Take Away Tips

  • Look at homes in the less well known areas of the city, you may well find an affordable gem of a home hidden where you least expect it!
  • Consider up and coming neighborhoods, they offer the most bang for your buck.
  • Don’t give up if your first few offers aren’t accepted.
  • Visit as many properties as you can to see what your budget will get you.
  • Make sure you do your homework on the neighbourhood so you know what you’re getting into!
  • Stay in the game, things happen quickly in SF so you need to be ready to pounce on your dream property.
  • Get pre-approved for a mortgage, you’ll be much better placed to get an offer accepted.
  • Get help finding a home, experts really can make the difference between success and failure.

If you’re ready to talk through your San Francisco home buying options call or email the HomeSavvy team today. We offer a free concierge service to help you find a property, get approved for a mortgage, get a co-buying agreement in place, and close on your new home!

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