How to Switch from Renting to Owning a Home in the Bay Area

Are you currently renting in the San Francisco Bay Area but hope to buy a home in the near future? Wondering what steps you can take right now to make that goal a reality?

You’re in the right place! Below, we’ve gathered some helpful tips for current Bay Area renters who want to switch from renting to owning a home.

How to Go from Renting to Owning in the Bay Area

You’re currently renting a home or apartment in the Bay Area, but you’d rather be a homeowner. How do you make that happen? Here are five steps you can take to pave the way…

1. Create a budget and start putting money aside.

Some Bay Area renters get caught off guard when they try to transition to buying a home. They’re surprised by all of the upfront costs that come with a home purchase.

Take closing costs for example. Here in the San Francisco Bay Area, closing costs can quickly add up to thousands of dollars. And unless you use a zero-down mortgage program like the VA loan, you’ll probably have to make a down payment as well.

So it makes sense to put some money aside to help cover these home-buying expenses. This is something you can start doing right now, while you’re still in the early stages of research and planning. The sooner you start saving, the better.

While you’re at it, you might want to create a basic housing budget. It doesn’t have to be complex. Just take a close look at your monthly earnings versus your recurring expenses, and work down from there.

The idea here is to go into the house hunting process with some idea what you can afford to spend each month on a mortgage payment. Putting a budget on paper will also help you figure out how much money you need to save. So the two go hand in hand.

2. Calculate the full cost of homeownership.

If you’re switching from renting to owning in the Bay Area, and you need a mortgage loan to make it happen, be sure to calculate the full cost of homeownership. The principal amount you borrow will make up the bulk of your monthly payments, but there are other pieces to the pie as well.

In fact, a typical monthly mortgage payment consists of four different components. They’re often referred to as PITI, for the letters they start with:

• Principal amount borrowed
• Interest rate
• Taxes (i.e., property taxes)
• Insurance (i.e., homeowners insurance)

If you want to compare the cost of renting to owning a home in the Bay Area, you’ll have to factor in all four of these elements. Some mortgage calculators will help you out by filling in some averages for the tax and insurance parameters.

3. Expand your search box to improve your chance for success.

The Bay Area is one of the most expensive real estate markets in the U.S., and it’s often highly competitive. You know that already. What you might not know is that there’s actually a wide spectrum of average home values in the area.

For example, the median sale price in Solano County during the month this article was published was $610,000. That same month, the median selling price in San Mateo County was around $1.9 million. That’s a pretty broad range!

Some renters who switch from renting to buying a home in the Bay Area are unable to afford their first-choice city or community. In these cases, it helps to expand your search box as much as possible.

If you broaden your search to include surrounding communities, you might encounter lower prices, less competition, more inventory — or all three.

4. Be prepared for a lifestyle adjustment.

When you switch from renting to owning in the San Francisco Bay Area, you’ll experience a number of lifestyle and financial changes.

The biggest advantage of buying versus renting a home is that you gain an asset. As a renter, you make a monthly payment just for the right to occupy the unit. But you don’t gain anything back in return. As a homeowner, on the other hand, you’re making a monthly investment in something you actually own. So you gain equity over time.

But you’ll also encounter some maintenance and upkeep costs you didn’t have as a renter. Some people who switch from renting to owning are surprised by all of the maintenance-related tasks they take on.

Here again, research is key. If you spend some time researching common home-maintenance tasks, you’ll be better prepared for what might be in store. To get started, just do a Google search for “home maintenance checklists” and review some of the common chores that homeowners encounter.

5. Get pre-approved for a loan before house hunting.

We’ve discussed the benefits of mortgage pre-approval in a previous article.

To recap: getting pre-approved for a home loan will help you narrow your search to a specific price range, saving you time and energy. Pre-approval is especially helpful for Bay Area renters who want to purchase a home.

Having a pre-approval letter from a mortgage lender can also make sellers more inclined to accept your offer, since you’ve been “pre-screened” in advance.