How People are Coming Up with Their Down Payment
Living in Redwood City and in surrounding areas in the Bay Area is not cheap. With prices where they are now, I'm often asked by people that are getting ready to enter the market and buy a home, "Just how are people doing it these days?"
Even if you have the income to make the mortgage payment, coming up with a 20% down payment for a house on the Peninsula is no small feat. While some people are getting creative by living in a truck, unless you live in an rent controlled apartment, live with family, or already own a home, you're probably getting gouged with high rent. You can't write off the rent you're paying and you'll never see any kind of return on that money.
So here's how people are coming up with a down payment to buy a house. Maybe one or more of these options will work for you too:
Stay with family
While it may not sound that appealing, especially if you've already started a family of your own, it is a great way to save money. One-bedroom apartments in Redwood City rent for $2,000+ per month, not including utilities. People that are still living with their folks are socking away an additional $25k per year towards their down payment.
Get a gift or loan from family
Not everyone's family can give or loan them money for a down payment, and for some it's not worth the discomfort in asking for it. But if getting a loan from a family member is an option for you, it could be a win-win for both sides. Banks are not paying any more than 1-2% in interest right now, yet interest rates on loans are in the 3-4% range. If you have a family member that has money in a savings account, loaning you the money and getting paid back at a higher interest rate is more profitable for them, and they are helping you invest in a home at the same time.
Cash in on stock
Not all of us work at companies where we have nice stock options, but then again, some of us do. Selling some stock, while it may be hard to do, especially if the stock is doing well, can be worth investing in a home. Your stocks can be just enough to cover your down payment, or at least, make a healthy contribution.
If you bought a home within the last few years, chances are you're sitting on a good amount of equity. If the property qualifies as your primary residence and you've owned it for at least two years, you can walk away with as much as $250k if you're single, or $500k if you're married, tax-frees (of course you'll want to confirm with your CPA/accountant to make sure you qualify), and use that money towards buying a new home.
While the amount required for a down payment on a home purchase, and the mortgage payments thereafter, can seem overwhelming, it is doable. It may be a lot less expensive to get into the market now rather than down the line. When the market shifts, it could have little or no impact on prices if inventory stays as low as it's been the last several years, or if interest rates go up.
If your plan is to enter the market, or start planning for it anyways, feel free to drop me a line if you have questions or just want to talk about it.
PS. If you're thinking about buying a house, check out our list of 20 questions to ask and five things to do before you get serious about buying a house.
Cliff Whearley has been a resident of Redwood City for 23 years. He is a Realtor at Dwell Realtors, Inc. and has been practicing real estate since 2007. If you have any real estate questions, he would love to help!