"Can I ever afford the home I want in the Bay Area without having a gazillion dollars?"

“Can I ever afford the home I want in the Bay Area without having a gazillion dollars?”

Even with a six-figure income, buying a home can feel unaffordable. And now with rising mortgage rates and impending recession, does it even make sense to try?

Oakland-based real estate agent Brook Baird has a background working in government programs to support more home ownership in the Bay Area by providing alternative financing programs for the “missing middle.” A devoted East Bay native, she’s practiced real estate through several large market shifts and can speak with perspective on the current environment.   

In this 20 minute interview, I ask her the following questions:

Given where we are with mortgage rates and the market environment, is this a good time to buy? 

What is the best buying strategy for Bay Area real estate?

How do these alternative financing programs work?

What are the top mistakes that first time buyers make?


Jenni: So I decided to invite Brook Baird who is a realtor in the Bay Area to have a chat with us and answer some questions like how to buy a house in the Bay Area if you don’t have a gazillion dollars. So Brook, tell me a bit about your background and what you do, who you serve?

Brook: Sure. So I have had my license since 2005 so I’ve been through a lot of ups and downs in this market. I have been working in the East Bay since 2011. I mostly work with buyers. A lot of first time buyers. I like working with different folks who some sometimes might feel like the real estate market is out of reach to them. So I work with a lot of single women, alternative family structures , artists entrepreneurs.

Jenni: That’s awesome. Cool yeah well I’m glad you’re serving this community. So the market has changed a lot. We’re looking at a situation where you had this amazing low interest rates and now interest [00:01:00] rates are much different. And the big question everyone’s asking is like is this a good time to buy?

Brook: Rates are high, rates are a lot higher than they’ve been. But historically they’re not insanely high. There were whole decades when, you know, the rates were higher than this and people still bought and sold houses. So it’s really about the individual and their situation. And, if you are able to, this, this can be a great time.

Brook: The low rates were great over the past few years but you know in my market in the East Bay it was also really really hard for buyers. You were always dealing with multiple offer situations. You had very very little leverage so things like doing inspections or you know what if your appraisal didn’t come in, you really kind of just had to throw up your hands and give up all of those rights to get your offer accepted.

Brook: And you know sellers were used to it and they knew that they could ask that and they would definitely get it. So rates were great but it was also pretty painful for buyers. And a lot of people submitted a lot of offers and you just dealt with a lot of frustration and doing things that they didn’t feel a hundred percent comfortable with.

Brook: So this new market is not so hot for sellers, definitely more balanced, and it’s really good for buyers in certain ways because you’re back in a position where you have some leverage and you can ask for things that you couldn’t ask for before. You can get more inspections on the property so you feel more comfortable. You can work with a lender or a loan product that might not have flown before because the sellers weren’t familiar with it and just wanted the quickest close. They weren’t willing to wait around or educate themselves. So yeah in that way you really have a lot more options and a lot more security.

Jenni: What are you seeing in terms of prices and inventory that’s out in the now?

Brook: I mean prices are definitely coming down. I feel like [00:03:00] I think always it’s the same advice no matter what the market is. Look at your monthly payment. That’s gonna be the most important thing. Do you feel comfortable with this monthly payment? So prices are coming down rates are coming up but you know they’re they’re balancing out a little bit.

Jenni: So if someone’s coming in as like a first time buyer what is the best buying strategy for Bay Area real estate?

Brook: You know everybody’s financial situations are so different. We don’t always even realize how different our financial situations are because in our society we don’t like to talk about money. So I think it depends on sitting down with someone and looking at your whole situation. Definitely the first thing is to figure out your financing first because otherwise you’re just kind of daydreaming and it’s painful. You know you can set yourself up for a lot of disappointment. So figure out your your financing situation. And that also depends. Like when I work with people a lot of times [00:04:00] they haven’t been pre-approved, or maybe they were pre-approved with the guy their brother used or whatever.

Brook: But I’ll talk with them about what their situation is and then I can send them in different directions for which lender would be best for them. Like if you have a lot of assets there are some lenders that are offering really low rates if you are willing to move your assets over to their institution. So that might be a good option for somebody. If you don’t have a lot of assets but you know you have a decent income there’s a lot of programs out there that offer down payment assistance, closing cost assistance stuff like that, and now is actually a great time for those because sellers are willing to look at those. And they weren’t in the past.

Brook: There are great programs They’re actually in some ways a more solid offer than somebody with conventional financing because to apply for these programs you go through multiple steps and you’re vetted every step of the way. So usually by the [00:05:00] time you know you get your final pre-approval, your file has been underwritten up down backwards forwards. So you’re actually a really sure bet that you’re gonna be able to close that transaction.

Jenni: Can tell me a little more about these alternative financing programs, like what kind of person could qualify?

Brook: Most of them are income restricted and most of them are for first time buyers, although first time buyer has different definitions. It could just be that you haven’t owned a home in the past three years. So definitely worth like getting into the nitty gritty of that. You know in the Bay Area a lot of programs are trying to reach what they call the “missing middle”.

Brook: There’s a lot of programs for low income. Obviously if you’ve got a lot of money it’s not an issue. But this middle where like you’re still really struggling but there’s not a lot of access a lot of programs. So there’s actually quite a few programs out there that are targeting that group. And that’s usually 120% AMI which is [00:06:00] area median income. For example in Oakland 120% AMI for a single person would be making around 120,000 a year.

Brook: It’s done by household size so if you’re both earning that it’s probably not gonna work. Because it definitely doesn’t double. But if you are a couple and you have a couple kids they count those into your household size right now a lot of people are looking into multi-generational living situations. So if you’re bringing your parents in and they’re retired you know that they’re a part of your household but they’re not earning. So it kind of just depends on this situation.

Jenni: Do these programs look at asset levels and if so how do they do that ?

Brook: It depends on the program. There’s usually some sort of asset but I do feel programs are becoming more lenient with that just because in the Bay Area we have really an older housing [00:07:00] inventory, almost every home is gonna need some work. So people really take into consideration, we don’t want someone to have nothing left once they get this home. They’re gonna need a little cushion So I feel like the programs are always evolving and that’s some feedback that they took in into consideration. But there are also programs that you don’t really have an asset limit but do help with your rate or some other aspects.

Jenni: Okay so actually maybe you can explain how do these programs help. Is it by giving you a lower rate or making the down payment go away?

Brook: There are so many different programs and they you know they work in a bunch of different ways. A great place for people to start is on the Cal HFA website which is the California Housing Financing Agency. And they have a ton of different options. There’s one that I have somebody using right now which is called the Equity Builder where they [00:08:00] give you basically a you zero interest loan for a certain percentage of your down payment and then if you stay in the house for five years that’s forgiven at the end of the five years. If you stick it out you’ve earned $60,000 or something towards your down payment and also brought down your monthly payment that whole time. There’s one called AC Boost which is offering up $210,000 towards down payment. So there’s there’s just really a mix of different options out.

Jenni: And if someone is just kind of looking on their own, what would be the first step? How should they find out if they qualify?

Brook: They should talk to a realtor.

Jenni: Good

Brook: Okay but yeah they should talk to a realtor who is specifically comfortable with these programs, with working with folks with a broad range of incomes. A good realtor who’s [00:09:00] works in that group will be able to give you some referrals to different lenders based on your specific situation. You can also always just check the websites. The Cal HFA website has a description of a bunch of the programs just on the homepage.

Jenni: It sounds like there’s a lot to navigate so it would be helpful to have somebody who’s got experience and expertise in this.

Brook: Yeah, And especially to get the right lender because the programs are really nuanced. So if somebody doesn’t work with ’em all the time it can be really challenging. You know you have to go “Oh okay well this one has that limit in that way but this one allows this much and reserves,” and kind of like mix and match and figure out what’s gonna be, run the numbers on a couple different scenarios and figure out what’s gonna be the best option for you. And also there are more of these programs coming out all the time. A lot of people have heard about Bank of America is offering a zero down payment zero closing costs loan in certain census tracks.[00:10:00] There’s some good things about that, there’s some bad things. But, I think it’s indicative of how much people are trying to figure out what to do about the housing crisis and offer some different options.

Jenni: Great, that’s super helpful. Generally speaking, if you take one of these programs is there any, I guess, catch? Do you do they own the house or are you gonna be restricted, and when you sell the house? What is the catch after you’ve you’ve taken one of these financings?

Brook: Yeah it’s you know again it’s different for different programs. So, the catch with one – I think with Equity Builder, the rate is a little bit higher than you could get somewhere else but then at the end of however many years you get that lump sum forgiven. Some of the down payment assistance ones are shared equity programs. So when you go to sell, you have to repay it. It’s a zero interest loan. And then the program might take a percentage of the equity that you earned while you were there. It’s usually a pretty small percentage. Different ones [00:11:00] cover their costs in different ways.

Jenni: Yeah okay makes sense. So it sounds like the key is their nuance and it’s really important to understand the fine print and to have someone to help figure out that fine print so you’re not signing up.

Brook: Yeah somebody who’s already done the spreadsheet. It’s gonna hurt your brain to start from scratch on the spreadsheet.

Jenni: Okay so financing -So let’s assume that this first time buyer has now found financing of some kind maybe through one of these programs. Now what do they do? What’s the next step in terms of the buying process?

Brook: Now you start talking with your realtor about what’s possible. This is a really important part of the process and sometimes it takes a while. Every once in a while you get somebody who’s like: “I’ve got all the money and I want this thing that’s very reasonable.” And it’s like then they can have whatever they want. For most people there’s gonna be some trade offs. You would love to be able to also walk to stuff but maybe you know the school district that you want, There aren’t a lot of areas like that. [00:12:00] So you’re just weighing what’s what is actually most important to you. People change their minds all the time throughout the process of what they thought was important when they started to where they end up. So I usually have people start by going to open houses and see as many houses as possible. And then you know we’ll go back later if there’s something that really interests you. And we can go back alone so we can take a look at it without the agent there without other buyers there and kind of take some time and and talk through the pros and cons.

Jenni: Last question for you: What are some of the top mistakes that you’ve seen buyers make?

Brook: Good question. Sometimes just not really being realistic about what they can take on in terms of their time and resources. Like I said, most of the homes around here have some degree of work. Sometimes people think they can do more than they can or they’re not taken into consideration how challenging it can be to you [00:13:00] know have contractors at your house doing this work.

Brook: Not really looking at their total monthly payment. So their mortgage, insurance, property taxes, interest, all of that. Property taxes can sometimes sneak up on people if you know they weren’t accounting for that from the beginning. Not having a good reserves because stuff happens. Even if you do all of the inspections, there’s stuff that you know people can’t see or hasn’t happened yet. And once you’re the homeowner there’s nobody else to call. That’s on you. Oh one other thing is in the Bay Area closing costs. The Bay Area or the East Bay especially we have some of the highest closing costs In the country. Because you know most of the cities and counties, That’s where they’re making their money. So they add on all sorts of different fees and ordinances that happen at closing.

Jenni: Is there a general figure that it usually ends up being?

Brook: Yeah people usually say like [00:14:00] Three to 5% the cost. It depends on the city. Like in Oakland we have a sewer lateral ordinance. The sewer lateral has to be clear or somebody has to agree to pay for it. And we have a sidewalk ordinance uh kind of the same thing. And those can go from 4,000 to 20,000 ,30,000, I mean it just really depends. So looking at at all of those costs and making sure that you also have the cash for that upfront and and that’s not gonna be eating Your reserves.

Brook: There are actually a lot more closing cost programs that are coming out right now that are just grants for closing costs because people gotten so hung up on this. It comes out of the blue for a lot of people. Yeah they’ve got you know they’ve got enough saved and their income’s good and they’re like “Okay you know I did all of the things.” And then it’s like, where where did all of these extra costs [00:15:00] come in and it can be a real barrier for for some people. So there are a lot more programs coming out right now that just specifically address closing costs and usually are just grants. Those are really helpful around here.

Jenni: Gotcha And that’s similar. They’re usually like similar criteria as the other programs?

Brook: Yeah just trying to help people who maybe don’t have some kind of intergenerational wealth

Jenni: The gazillion dollars we talked about earlier.

Brook: The gazillion dollars. Yeah, Wherever it’s coming from you don’t have it.

Jenni: Okay cool. Anything else you wanna add that I haven’t asked?

Brook: So you know in the market right now, it is now turning into a buyer’s market. So there is the possibility to negotiate which honestly hasn’t really been a part of the sales process for a long time. That’s a whole skill set that when you’re looking for a realtor especially right now , you really wanna check with them and make sure that they’ve been in the business long enough. They can give you some examples where they really had [00:16:00] to negotiate on behalf of a buyer. Because in the past, a lot of times the offers were totally non contingent. Once you were in contract there really wasn’t much you could do.

Brook: Now if you know things are moving in favor of buyers, there’s the opportunity to negotiate. So you need to work with somebody who’s gone through that before, understands how to get the bids that you need, how to present that information to the seller , just has experience with the back and forth that comes with negotiation. It’s honestly gonna be new for a lot of people cuz we just haven’t been in that market.

Jenni: Thank you, Brook. This wrap up, this video. So if you’re thinking about buying a house, whether that be your first house or your next house, I hope you got something out of this chat.

Jenni: Here are the key points that I took away. The market has changed a lot, but if you’re able to, this can actually be a great time to be a buyer.

Jenni: First step, regardless of what’s going on with the market, is to figure out what monthly payment [00:17:00] you can afford and sort out your financing. Yes, mortgage rates have gone up, but prices have also become more reasonable, so it might actually somewhat even out.

Jenni: There are many alternative financing programs aimed at people who have a good income but are still struggling to afford home ownership. So don’t lose heart. These programs though, can be complicated to navigate and a realtor who is experienced in these programs can be a great resources.

Jenni: Buying a home is probably the biggest purchase of your life, and getting some professional help can be a great relief. A financial planner can help you figure out questions like, How much house can you afford? How would buying a house affect your other goals? How should you best save for a house? And then once you’re ready to buy, a good real estate agent like Brooke can help you navigate through the home buying process.

Jenni: So if you need help, don’t hesitate to reach out to either of us. Thanks for watching.