How to buy a place in the Bay Area, step 1

Home prices in the Bay Area are through the roof and the media sends mixed messages as to whether prices will keep going up, stay the same, or start heading down. You want to buy a place but you're worried about the housing situation. What's one to do? In actuality buying a home, even one in the Bay Area, is really easy. It's keeping the house that is the hard part.

So here is step 1 in the home buying process: Know thyself.

Before you do anything, you have to know what you want. So isolate yourself; don't look at magazines or books, don't look on the web, and don't talk to anyone. Once you do that, then you can do some soul searching. If you "research" before you soul search, then you'll end up listening to everyone else's opinion about real estate. And for buying a place in the Bay Area, that can be really costly.

While you're soul searching, ask yourself the following questions:
1. Why do you want to buy a home?
2. How long are you willing to keep a house in the Bay Area?
3. How much are you willing to put into a house on a monthly basis?

1. Why do you want to buy a home? This is the absolutely most important question, and you need to answer it honestly. Don't kid yourself. Many people want to buy a home because it seems to be the most financially savvy thing to do (tax breaks, price appreciation, etc.), or because everyone else they know has bought a house. Or they imagine having the house to grow old with them; it'll be the place where the kids will grow up, with lots of memories to be made.

Know this about the Bay Area: You will not get your dream home on the first try. You probably won't even get it ten years from now, when you have a house that you can trade up with. It's just too expensive.

Are you willing to buy a "dump" as your first house? Or a place that is a lot smaller than you are used to? Or a place in a bad neighborhood? Or a place that has a long commute time?

Think long and hard about why you want a place. Renting in the Bay Area really isn't such a raw deal -- you get a lot more space in a better neighborhood for a lot less money. But there are reasons for buying a place too; it just has to make sense for you. In addition, run through a few scenarios to see what you would do with a house. What would you do if you got a promotion? Got fired? Went back to school? Got married? Got divorced? Inherited a million dollars?

2. How long are you planning on staying in the area? If it is less than five years and you are not planning on keeping the house, then don't buy. If you might be leaving, but you'll hold on to the house regardless of what happens, then buying is definitely worth considering. Remember, it's not when you buy, it's for how long you're going to keep the house.

3. How much are you willing to put down on a monthly basis? Ignore all advice and follow your own feelings. One of the most important reasons to buy a home is to feel secure about the place you're living in. If you're uncomfortable with your monthly payments, then you won't ever feel secure in the house you just bought.

How do you know what you'll be comfortable with? There are a few ways to figure it out, but the easiest is to go with your current situation. Say you're currently paying $700 per month in rent. How comfortable are you with that? What about $1400? $2100? $2800? Keep going until you feel that you absolutely could not, would not, shell out any more money on housing. That's your threshold. It'll be different for everyone.