How Much House Can I Afford to Buy in the Bay Area?

With a median home price of more than $1 million, the San Francisco Bay Area is one of the most expensive real estate markets in the country. This makes affordability a top concern for many home buyers.

A lot of those buyers are wondering the same thing: “How much house can I afford to buy in the Bay Area?”

Some financial experts recommend spending no more than 33% of your income on a monthly mortgage payment. There are other formulas and rules of thumb out there, as well. But these “rules” are generic and might not apply to your particular situation.

Overview of Bay Area Home Prices in 2024

As you probably already know, home prices in the San Francisco Bay Area far exceed the national average. The median or midpoint home value for most cities in the region currently runs higher than $1 million.

Here are the median price points at the end of 2024, according to Zillow:

• Bay Area as a whole: $1,145,000
• Fremont: $1,554,000
• Oakland: $758,000
• San Francisco: $1,260,000
• San Jose: $1,413,000
• Sunnyvale: $2,024,000

Determining How Much You Can Afford to Buy

How much of a monthly mortgage payment can you take on, without sacrificing your quality of life, your savings, etc.? If you don’t have a specific number in mind, you’ve got some homework to do.

Before talking to mortgage lenders or shopping for a home, you’ll want to sit down and review your monthly income and expenses. This will help you determine a maximum mortgage payment.

For starters, compare your net monthly income (or “take-home pay”) to your non-housing monthly expenses. Non-housing expenses include gas, food, credit card bills, car payment, entertainment, and savings account contributions.

Subtract your monthly non-housing expenses from your take-home pay, and you’ll have a good number to start with. This is what you have available to put toward a mortgage payment each month.

Using the ’28/36′ Rule as a Starting Point

In the Bay Area, mortgage affordability isn’t a “one-size-fits-all” calculation. Some borrowers feel comfortable with larger debt loads, while others prefer to keep their debt more manageable. Ultimately, it’s a personal choice.

Still, it helps to have a general guideline to work from, and the “28/36” rule checks this box.

Let’s look at an example based on current data. The U.S. Census Bureau reports that the median household income in the state of California is currently around $127,000. That’s roughly $10,583 per month.

Using the 28/36 rule, a household in this income range might set the following spending limits:

• Housing costs (28%): $2,963 per month
• Total debt (36%): $3,809 per month

Note: This budgeting strategy serves as a starting point and might not apply to all borrowers. Some mortgage programs allow for debt ratios up to 43%, or even higher.

Housing Budget First, Pre-approval Second

Mortgage pre-approval can be a very helpful step during the home buying process. This is when a lender reviews your financial situation, including income and debt, to determine how much they’re willing to lend you.

Getting pre-approved for a loan will help you narrow down your property search. It could also make sellers more inclined to accept your offer, since you’ve been screened by a lender already.

But there’s an important distinction to be made here. Pre-approval does not tell you how much of a house you can comfortably afford. That’s something you’ll want to determine on your own, ideally before you talk to mortgage lenders.

Closing Costs and Down Payments

As a home buyer, you also have to think about your closing costs and down payment. These up-front expenses can affect how much of a house you’re able to buy in the Bay Area.

Down payments can range from 3% to 20% of the purchase price, depending on the type of loan you are using and other factors. VA loans offer 100% financing, which means no down payment whatsoever.

Closing costs for home buyers in the Bay Area typically range from 1.5% to 5% of the purchase price, on average.

So there are upfront and long-term costs to consider, when determining how much house you can afford.

You want to keep your monthly mortgage payments at a manageable level. But you also need to consider your upfront expenses, including closing costs and down payment. How much cash do you have for those expenses?

How to Afford a House in the San Francisco Bay Area

When it comes to affordability and budget, there are basically three types of home buyers:

• Those who can easily afford to buy a house in the Bay Area.
• Those who cannot afford a home purchase in this market.
• Those who might be able to swing it with the right approach.

If you fall into the third group, this next section is for you! It offers tips, strategies, and considerations that could help you afford to buy a home in the San Francisco Bay Area.

Step 1: Save Money for Your Housing Costs

The more money you can save now, the better off you’ll be when it comes time to close on the house. At a minimum, you’ll need enough money in the bank to cover your down payment (if applicable) and closing costs.

• Establish a goal. Start by considering the potential costs of buying a house. Unless you use the VA loan program, you’ll probably have a down payment of some kind. It might range from 3% to 10%, or more in some cases. You’ll probably have to pay closing costs as well, which can add up to thousands of dollars.
• Reduce spending. Think about the items you spend money on each month. Some of them are necessities — others are luxuries. Which of the luxuries could you do without? If you dine out or DoorDash a lot, consider making more dinners at home. Apply this same discipline to everything you do, between now and your closing day.
• Create a fund. Consider creating a separate savings account for your housing fund. If you dip into your checking account on a daily basis with your debit card, it might be better to have a separate account for your home buying fund. That way, you won’t chip away at those funds without realizing it.
• Remember the goal. Every time you’re about to buy something you don’t absolutely need, remember your priorities. Think about that Bay Area house you want to buy, and how you’re going to need every extra cent to make it happen. Do you really need that new TV right now? Probably not.

Step 2: Choose the Right Loan for Your Situation

We talked about the importance of establishing a budget and saving money, so you can afford a house in the Bay Area. Now it’s time to consider the different mortgage options available to you:

• FHA vs. conventional: Consider the differences between FHA loans and conventional mortgages. This is one of the key decisions you will have to make when buying a home. The minimum down payment for an FHA loan is 3.5%. Conventional mortgage loans allow for a down payment as low as 3%, in some cases.
• Fixed-rate vs. ARM: Another important decision is whether you want to use a fixed-rate mortgage (FRM) or an adjustable-rate mortgage (ARM). With a fixed mortgage, your interest rate will never change; but you’ll probably pay more in interest during the first few years. With an ARM  loan, you could secure a lower mortgage rate; but the rate can change over time.
• Gift money: You might find it easier to afford a house in the Bay Area if you use gift money for your down payment. This is when a third party (such as a family member) contributes funds toward your down payment. Many home buyers use this strategy to overcome the affordability hurdles of buying in the Bay Area.

Step 3: Consider the Location Carefully

The Bay Area real estate market can be pricey. But some cities are more affordable than others. If you have some flexibility when it comes to your location, try to consider various cities across the region.

We’ve covered this subject in the past. For instance, we wrote a separate blog post about Solano County being the most affordable housing market in our region, in terms of home prices.

You might have an easier time affording a house in the Bay Area if you cast your net far and wide.