Sav­ing for a Bay Area down pay­ment?

New study looks at down pay­ments across the nation

Times-Herald (Vallejo) - - LOCAL NEWS - By Emily Deruy

Re­solv­ing to become a home­owner in the next few years? Buy­ers in places like St. Louis and Tampa need only to save a mod­est amount to make that goal a re­al­ity.

But in the Bay Area, you’ll need a stash.

Ac­cord­ing to a new anal­y­sis from Re­al­, would-be home­own­ers in the San Fran­cisco-Oak­land-Hay­ward metro area need to sock away $3,379 a month for five years to cob­ble to­gether a me­dian down pay­ment of $212,000.

If that gives you sticker shock, for­get the South Bay.

In the San Jose-Sun­ny­vale-Santa Clara metro area, where the me­dian home goes for more than $1 mil­lion, home­buy­ers are putting down an av­er­age of $265,000. That re­quires sav­ing $4,224 ev­ery month for five years or a whop­ping $7,170 each month for three years.

And those fig­ures don’t ac­count for any po­ten­tial change in home prices. So if the mar­ket ac­cel­er­ates, those amounts could rise. Still, it could be worse. “With re­cent moves to­ward lower mort­gage rates, home buy­ers have seen slight re­lief in the last 12 months in high-priced markets,” Re­al­’s di­rec­tor of eco­nomic re­search, Javier Vi­vas Castillo, said in an email. “The lower cost of bor­row­ing along with mod­er­at­ing home-price growth, and in some cases price cor­rec­tions and builder in­cen­tives, have opened up the win­dow to more prospec­tive home buy­ers.”

Across the 20 or so metro ar­eas Re­al­ an­a­lyzed, buy­ers in the Bay Area are shelling out the largest down pay­ments. The Los An­ge­les-Long Beach-Ana­heim re­gion is the next most ex­pen­sive. Still, with an av­er­age home price of $645,000 and an av­er­age down pay­ment of $132,000, buy­ers need to save a rel­a­tively mod­est $2,104 over five years for the stan­dard down pay­ment.

By com­par­i­son, the av­er­age U.S. home is worth around $243,000, ac­cord­ing to Zil­low. In other words, many Amer­i­can homes are worth less than a typ­i­cal Bay Area down pay­ment.

Ac­cord­ing to Re­al­tor. com, there’s also a sig­nif­i­cant vari­a­tion in the per­cent­age peo­ple put down. De­spite sky-high hous­ing costs, buy­ers in the San Fran­cisco area — home to wealthy tech work­ers who pull in some of the high­est salaries in the nation — typ­i­cally put down a ro­bust 24 per­cent.

“Gen­er­ally, buy­ers in denser, higher-priced markets tend to aim for higher down pay­ments as loan risk, in­ter­est and re­quire­ments tend to in­crease with higher home-pur­chase val­ues,” Vi­vas Castillo said.

Peo­ple who put down large down pay­ments can also some­times avoid buy­ing pri­vate mort­gage in­surance, he added.

Still, “first-time buy­ers in these markets are par­tic­u­larly forced to be more cre­ative, so sce­nar­ios such as BOMAD — bank-of­mom-and-dad — fi­nanc­ing, multi­gen­er­a­tional mort­gages, dual-in­come, no-kids sav­ing strate­gies, longer com­mutes, mort­gage helpers and ren­o­va­tions are not un­com­mon,” Vi­vas Castillo said.

In other markets, where hous­ing is rel­a­tively af­ford­able but salaries are also lower, peo­ple put smaller amounts down. In the Philadel­phia-Cam­den, New Jersey-Wilm­ing­ton, Delaware area, for in­stance, buy­ers are putting down $21,900. That’s eight per­cent of the me­dian sale price of $260,000.

To cal­cu­late the amounts, Re­al­ as­sumed an in­ter­est rate of 1.8 per­cent on the sav­ings.

A grow­ing num­ber of Bay Area res­i­dents, par­tic­u­larly mil­len­ni­als, say they are con­sid­er­ing leav­ing the re­gion in part be­cause own­ing a home is no longer a re­al­is­tic dream. In the Seat­tle area, a pop­u­lar des­ti­na­tion for peo­ple leav­ing Cal­i­for­nia, the me­dian down pay­ment is $73,000. In the Phoenix area, another pop­u­lar choice, it’s just $25,000.

Ul­ti­mately, at least in the Bay Area, Vi­vas Castillo said, “our anal­y­sis of the re­cent down pay­ment data shows home own­er­ship in some markets re­mains a lux­ury item.”

A new law makes buy­ing a home a lit­tle eas­ier for at least one group of peo­ple: vet­er­ans.

VA loans have long given ac­tive-duty mil­i­tary ser­vice members and vet­er­ans ac­cess to home loans that al­low for zero down pay­ment. But in the past, there have been lim­its. In ex­pen­sive places like Santa Clara County, where last year the cap was in the $700,000s, down pay­ments have been re­quired for typ­i­cal, mar­ket-rate homes, which were reg­u­larly priced above $1 mil­lion. As of January 1, those lim­its are mostly gone and the im­pact in places like San Jose and Oak­land stands to be sig­nif­i­cant.

“Now, if a vet­eran can af­ford a $1.5 mil­lion mort­gage, they can get that mort­gage with­out putting down a dime and that has not been the case in years past,” said Chris Birk with Vet­er­ans United Home Loans, which re­cently ran an anal­y­sis of where vet­er­ans will see the largest in­crease in their abil­ity to pur­chase with­out putting any money down.

It’s un­clear ex­actly how many peo­ple might ben­e­fit. But ac­cord­ing to Vet­er­ans United fig­ures, in fis­cal year 2019, more than 1,300 fam­i­lies re­lied on VA loans in Con­tra Costa County. Hun­dreds more fam­i­lies took out the loans in Alameda, San Ma­teo and Santa Clara coun­ties that year. Now, Birk said, he’s hear­ing from bor­row­ers who pushed off clos­ing on prop­erty un­til af­ter the start of 2020 to take ad­van­tage of the change.

With the help of the new law and with the GI Bill re­duc­ing the need for hefty stu­dent loans, young vet­er­ans may be in a much better po­si­tion when it comes to buy­ing a home than their non-mil­i­tary peers who are strug­gling to put to­gether large down pay­ments while bur­dened with debt.

“They’re not stuck,” Birk said, “on the side­lines like civil­ians.”

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