How to Buy a House In a Ridiculously Expensive Area

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“Seriously Derek… All your posts talk about people buying houses for $100k and $150k. What kind of fairy tale land is this? I live in California where the cheapest house known to man is $700k. How in the heck can I afford to buy a house?”

If you live in New York, Boston, Seattle, San Francisco, San Diego, or any other ridiculously expensive area, then this post is for you. Because today, I’m going to show you how it’s possible to purchase your very own house on almost any income.

Want to buy a house in an expensive area? Step right up and let’s get crakin’.

How to Buy a House in an Expensive Area

Let’s say that you have your heart set on buying a house (and you absolutely refuse to move to a lower-cost area), what all can you do to make it happen?

The Rules of Buying a House

Before we get into the action steps, let’s lay out the ground rules for buying a house.

buy a house in an expensive areaYou should:

  1. put at least 10% down,
  2. buy a home with a 15-year fixed mortgage, and
  3. have a monthly payment that’s no more than 25% of your take-home pay.

So what does this mean for all you folks that want to buy a house in an expensive area?

Let’s say you’d like to buy a nice condo in the San Fransisco area. The cost? $899,999.

In order to buy this, I’d recommend that you:

  • put $90,000 down (10%),
  • buy it on a 15-year fixed mortgage loan,
  • and with a resulting $5,680 monthly payment, you should be netting 4x that at $22,720…

…which is basically a pre-tax income of $400,000 a year.

Whew! These numbers might be pretty tough for some of you, but don’t stop reading! Let’s figure out how we can make it happen!

Want to calculate these details for your situation? Use my free Mortgage Payoff Calculator.

Related: Free Mortgage Payoff Calculator – How Fast Could You Pay Off YOUR Mortgage?

1) Clear Up All Your Debts

It makes absolutely no sense to save up money in your bank account while you’re making interest payments on your car, your student loans, or your credit card. Before you start saving up for a house, you should be completely debt free.

This will:

  1. Allow you to save up faster once the debt is gone, and
  2. It will allow you to make your house payments without the stress of a million other payments.

Want help? Check out my Debt Snowball tool. By entering values into just a few cells, you can figure out exactly how long it will take you to clear all your debts.

2) Live on Practically Nothing for That HUGE Down-payment

Want to buy a house in an expensive area? You’re going to have to save up a massive down-payment…which means that you should live on practically nothing for a few years while you save.

Let’s say that you don’t have the $400,000 income that’s needed to buy the $899,999 condo in San Fransisco.

Well, if you…

  • increase your down-payment,
  • you’ll decrease the amount that you need to borrow,
  • which will decrease the payment.

If you net “only” $18,000 a month (Ha, I think I just choked a little….since I net less than a third of that), you’d need a house payment that’s $4,500 or less (25% of your take-home pay), which on a 15-year note means you can borrow about $630,000.

So, to buy that $899,999 condo, you’d need to scrounge up a down-payment of $270,000!

It definitely won’t be easy, but with $18,000 a month coming in, it’s certainly doable (save $10,000 a month for 27 months!).

So where do you start?

There are three major areas where all of us spend the majority of our money:

  1. Rent,
  2. your Car, and
  3. Food

If you want to save a crap-ton of money in a short amount of time, you should focus on these three areas.

So in other words, I recommend that you:

  1. Live in a low-cost apartment and share it with friends to further minimize your payment
  2. Buy a cheap car with cash or better yet, do without it and use public transportation
  3. Shop at discount grocery stores and stop going out to eat

That’s it.

If you want to do even more, you can always cut the cable and live on Netflix and SlingTV (I know, that’s the annoying recommendation that you hear daily…but it’s actually pretty effective!).

Related: 30 Things to Do Instead of Spending Money 

 3) Earn More Money

There’s always the other side of the coin, right? If you don’t want to live like a hobo on a $300,000 income, then why not just work to bump your pay up to $400,000 a year?

Since I’m no expert at earning $400k a year, I decided to hop on Forbes.com. And of course, they had some solid advice on how to earn way more money.

Here are their top recommendations:

  • Change jobs
  • Request a raise
  • Coach
  • Blog

…and there’s 40 other recommendations as well, but these are the four best ones for this particular situation.

Changing jobs can give you an immediate raise, and the nice thing is you can ask for any amount that you want. If they can’t do it, then you simply keep working your existing job. It’s a risk-free situation.

Requesting a raise is a bit more tricky. Unless you have hard proof that you’re worth more than what you’re currently getting paid, I would be careful with this one.

The two recommendations I love most: coaching and blogging.

You already make hundreds of thousands of dollars a year! There are a ton of people that would like to know how to do that! Become a life/career coach and you could make even more!

And blogging – this has always been a passion of mine. I haven’t quite earned $100k a year doing it yet, but it’s definitely possible! Heck, Michelle from MakingSenseofCents.com earned nearly a million last year! Crazy huh? So why not give it a shot?

If you’re interested in learning more, check out my Start Your Own Blog page. Here, you’ll find out how to sign up, how to build your page, and how to start earning some money!

4) Invest

In a normal situation, I wouldn’t suggest that anyone invest their money while saving up for their down-payment, but for most of you, this isn’t a normal situation. 

Let’s say you earn an ‘okay’ income for your area and net $100k a year. That’s $8,333 a month, which means your payment should be no more than $2,083 each month.

buy a house in an expensive areaAt that payment amount, you can borrow just $295,000, which makes that $899,999 condo seem downright impossible! In fact, your down-payment would have to be $605,000…. womp wommmm….

But don’t give up! Saving up $605,000 is still possible! Let me show you!!

If you can live on just $40,000 of your $100,000 income and invest the rest into a reputable brokerage like Wealthsimple, you would likely save up your $600k in just 7 years (thank you compound interest!!)

I don’t know about you, but I’d rather wait 7 years to buy a house than to live paycheck-to-paycheck all my life…

Disclaimer: There is no guarantee of positive returns in the market…but we all know that don’t we?

Related: Start investing with Wealthsimple today and get $50 added into your account!!

5) Buy the Starter Home

I’m hoping this goes without saying, but for your first house…don’t target the Taj Mahal of the neighborhood. You’re already struggling to find the money for a home..any home. Don’t put yourself in a bad situation by purchasing an even more expensive house than you need.

Sure, it would be nice to have a 4 bedroom, 2 bath house vs. a 2 bedroom, 1 bath condo, but that can come later.

Get into the market small now, keep saving your money, and then buy that bigger house down the road.

Let’s Get You a House!

Alright, so let’s recap. If you want to buy a house in an expensive area, it’s in your best interest to take the following steps:

  1. Clear yourself of all consumer debts
  2. Cut your lifestyle waayyyyy back
  3. Do everything in your power to make more money
  4. If it’s going to take you a while to save, invest the money to give you an extra boost
  5. Don’t be tempted into the bigger houses – start small and stick to your budget

And there you have it! Sure, it might take you a while, but once you’re in your home and have a manageable 15 year mortgage, you’ll be so happy you waited!

Are you looking to buy a house in an expensive area? 

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7 comments to How to Buy a House In a Ridiculously Expensive Area

  • Kathy

    Unfortunately, I don’t think anyone learned the lesson of the last housing bubble popping. I have heard that the low down payment and even the horrible “liars loans” returning to the marketplace. How idiotic is that? And as an ……guilty pleasure warning…..addict of the house hunting shows and TV it becomes apparent that many of those buyers simply cannot really afford the houses they are purchasing. Prices in the cities/areas of the country you mention are INSANE. I’ve seen shows were a 900 square foot condo is a million dollars. And some of the houses they show are simply shacks. If I was house hunting and those are examples of what was available, I’d walk away, go back to my tiny apartment and wait for the next housing implosion and buy then.

    • Haha. Those house hunting shows make me so mad sometimes! They say their budget is $750k or something (which is already at the top end of what they can afford), and then their realtor shows them only properties that are over $750k….and then they choose the most expensive one of them all… People…

      With this post, I hope people take note of the 15 year mortgage and the 25% of take-home pay rules. If they live by these, their lives will be much more positive and pleasurable.

      As always, thanks for the comment, Kathy!

  • WTD

    I just don’t understand the draw of living in a high priced area like SF or NYC. I lived in NYC for 6 years and made decent money but the quality of life is pathetic. It was exciting and have no regrets, but literally everyone is hanging by a thread– I mean if they lose their job they’re screwed. Most everyone pays at least half their income in rent or mortgage and have no savings to speak of. I just don’t like that scenario. To each his own, but I would rather have a huge liquid cash/investment account versus buying in an overpriced market like SF where you will, and I repeat will, get whacked in the next RE downturn like 2008.

    • Hi WTD,

      Yup, the big city definitely isn’t for me, but there are some that are drawn there and love the lifestyle. So, instead of becoming house-poor to live there, I figured I’d offer a solution. I just hope people take my advice! They’ll sure have a much better future if they do!

  • Dani

    I would add to #5 that once you buy the starter home, to dump extra money into paying it off–I know it’s also the time to be saving for retirement and also kids’ college, but again, it’s a little bit different scenario for those in the ridiculously-priced markets. Our prices in Denver aren’t as high as some you’ve mentioned, but if a person ever wants to upsize from that 2 bedroom condo to accommodate a growing family, then the downpayment on even the mini McMansion will still need to be significant, which can be most easily accomplished by paying down the balance on what is owed on the current living quarters, to be recouped when it is sold.
    Somehow, we do better when paying down to zero than when building up savings–the motivation should be the same, but the “getting to zero” goal is a bigger kick in the pants, and I know hubby and I are not alone. I wonder if anyone has studied the psychology of why that is?

    • You’re absolutely right, Dani! “Somehow, we do better when paying down to zero than when building up savings.” I’m totally with you – pay down the house debt while investing 15%. Then buy the next step up later in life (maybe 5+ years down the road). Great comment!

  • […] I realize that in some parts of the U.S. this will buy absolutely nothing, but for those of us living in a normal cost-of-living area, this will buy a 5 bedroom, 3 bath home […]

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