SF First-Time Homebuyer Guide: The Dos & Don'ts

Buying your first home in the San Francisco Bay Area is a huge step, and it's natural to feel both excited and nervous. While it can be tempting to rush through the process, there are crucial steps to follow to ensure a smooth experience as a first-time homebuyer. Here are the 10 essential steps that you need to consider when you're buying a home for the first time.

Do’s

1) Know Your Credit Score and Legal Standing

Check your credit score regularly to identify any areas for improvement before applying for a mortgage. You can obtain your FICO score for free from some banks, otherwise a small fee may apply. Lastly, resolve any outstanding legal issues, such as child support payments, unpaid taxes, or lawsuits, as they can impact your loan eligibility.

2) Line Up Financing

Getting pre-approved for a mortgage clarifies your budget and streamlines the homebuying process. Research reputable lenders, comparing interest rates, loan terms, and first-time homebuyer programs to secure the best deal. Also, make sure to factor in closing costs like application fees, appraisals, and origination fees.

3) Submit Documents Promptly

Once you choose a lender, provide all requested documentation promptly to expedite the pre-approval process. This typically includes identification, bank statements, pay stubs, tax returns, and proof of income.

4) Work with a Local Real Estate Agent

Leverage the expertise of a real estate agent familiar with the housing market in your desired area. Skilled agents handle negotiations, advocating for your needs and ensuring a smooth transaction. They can also provide valuable insights you might overlook, such as grant opportunities for first-time buyers.

5) Research Different Neighborhoods in San Francisco

Explore various neighborhoods with an open mind. Consider attending open houses to immerse yourself with different areas, housing styles, and potential neighbors. Pay attention to factors like traffic flow, amenities, walkability, and proximity to essential services. These details are especially important for first-time homebuyers to envision their ideal lifestyle to be in their new home. 

6) Focus on the Home's Potential

While a checklist is helpful, prioritize a home's potential over specific features. A home with good bones and a spacious yard might be a great choice, even if the kitchen needs updating.

7) Maintain Your Financial Standing and Consider the Future

Avoid closing accounts, opening new ones, or changing jobs during the closing process to prevent jeopardizing your loan. Consider future appreciation and potential maintenance costs, such as roof repairs, appliance replacements, and HVAC upkeep. Also, think about how the home will meet your needs over time in upcoming years, especially if you plan on having children. Always keep your personal goals in mind, as they can evolve over time. 

8) Get a Property Inspection

A professional home inspection is crucial. The inspector will assess the property, identifying major problems, future concerns, and functioning systems.

9) Shop Around for Homeowners Insurance

Homeowners insurance is mandatory for financed homes and highly recommended for those purchased outright. Compare quotes from different companies to find the best coverage and rates.

During this process, keep in mind your privacy and security. Research mortgage and title companies before sharing personal information. Beware of wire fraud – always confirm wiring instructions directly with the title company before sending funds.

10) Pay Attention to Loan Estimates and Closing Disclosures

Carefully review the Loan Estimate (received within 3 business days of applying) and Closing Disclosure (provided 3 days before closing). These documents detail loan terms, projected monthly payments, and closing costs.

While the steps mentioned above are crucial to consider, understanding what to avoid is equally essential to ensure a smoother first-time home buying experience and avoid potential problems or inconveniences.

Don'ts

1) Start Looking Before You're Pre-Approved

Avoid the disappointment of falling in love with a home outside your budget by getting pre-approved first to establish a realistic price range. Then, start your research in the San Francisco real estate market.

2) Shop at the Very Top of Your Pre-Approval Range

While the pre-approval reflects the maximum loan amount, it doesn't account for post-purchase improvements. Consider a buffer within your budget to avoid becoming "house poor."

3) Wait Until You Save Up 20%

Don't let saving a 20% down payment delay your homeownership dream. Talk to professionals to explore loan options like FHA loans with a 3.5% down payment or VA loans with 0% down for veterans and qualified individuals. If you wait too long, you might miss a great opportunity. 

4) Get Too Emotionally Invested

Although buying a home is usually personal for first-time homebuyers, remaining objective is key. Prepare for the possibility of not getting every house you desire.

5) Forget to do your research and go beyond listing descriptions

Don’t rely solely on listing descriptions, which can be subjective. For instance, a "completely renovated waterfront home" might be located across a creek and remodeled years ago. 

Instead, always consider the following:

• Research online: Look for additional details and past listings in the same area.
• Scrutinize photos and videos: Pay attention to conditions and potential issues.
• Schedule thorough tours: Inspect the property in person.

Your local real estate agent can also be a valuable resource to determine if a home truly aligns with your needs.

Also, be mindful that online mortgage calculators are guides and not a guarantee. While they can be helpful tools, use them with caution. Not all are created equal, and some may not include all the costs of owning a home, such as principal and interest, property taxes, HOA dues (if applicable), homeowners insurance, etc. 

6) Forget To Consider The Appreciation Potential, Not Just Price

While predicting future appreciation is impossible, you can gather clues!

Here are a few that we think are useful: 

• Track past performance: Review historical data on property value changes in San Francisco.
• Analyze comparable sales: Look at recent sales of similar homes in the area and in the city.
• Evaluate neighborhood trends: Consider factors like new businesses or employment opportunities in the Bay Area.

Sometimes, the more affordable house on a desirable block offers better potential for appreciation than the most expensive one in a less promising neighborhood, especially in a city like San Francisco. Additionally, keep in mind strategic upgrades and remodeling projects can further enhance that value.

7) Overlook the Importance of Maintaining Financial Stability Until Closing

Another important thing we must emphasize is the importance of financial stability until closing. Avoid any changes that could affect your debt-to-income ratio.

For example, hold off on large purchases. This typically includes cars, jewelry, furniture, etc. Be prepared to explain large deposits by having your documents ready for any significant bank deposits. And lastly, try to maintain your financial status during this whole process by avoiding making significant changes unless your lender advises otherwise.

8) Forget to Leverage the Inspection for Negotiation

Use the home inspection report as a negotiation tool with the seller. Start by prioritizing specific issues,  especially major concerns such as health and safety hazards. Then, work with your agent to develop a strategy for negotiation. There are some options to leverage the inspection to your advantage; like requesting a lower sale price, repairs by a licensed professional, or seller-covered closing costs.

9) Neglect to Factor in Closing Costs When Budgeting

Anticipate closing costs between 2% and 5% of the purchase price. While shopping around for lenders and title companies can help minimize these fees, it's wise to overestimate. 

Here is what we advise to our first-time homebuyer clients: 

• Shop for competitive rates: Compare quotes from different lenders and title companies.
• Prepare for unexpected expenses: Having a buffer can prevent last-minute closing delays

10) Make Sudden Career Changes Until After Closing

Now's not the time for career shifts that could jeopardize your loan… Your focus should be on maintaining employment stability as your lender will verify your employment before closing. To ensure a smooth closing process, avoid making job changes such as quitting, reducing hours, or starting your own business simultaneously.

Now that you know the essential dos and don'ts of buying your first home in San Francisco, it's time to take action! Get pre-approved for a mortgage, connect with a reputable real estate agent, and begin exploring neighborhoods. With careful planning and the right guidance, you'll be well on the way to achieving your homeownership dream in the vibrant city of San Francisco!