How to navigate buying your first home in an expensive area

One of the pieces of advice first-time homebuyers hear repeatedly is to settle in an affordable area to avoid becoming "house-poor." But like any other financial decision, purchasing a house isn't about maximizing the math — it's making sure your money is creating joyful and fulfilling experiences based on your values.

For some people, that means trying to buy in some of the country's most expensive and competitive markets, even if they don't have a trust fund or a rich (and generous) relative to lean on. Below, CNBC Select shares stories of people who've successfully taken that plunge — and offers advice on how to join their ranks.

Bankrate evaluated and ranked 50 metro areas for first-time homebuyers using five criteria. Affordability was weighted the heaviest (40%), followed by job market (30%), housing market tightness (15%) and wellness and culture (15%). Based on these factors, the following five areas were put at the bottom of the ranking:

46. Riverside, California

47. San Diego

48. New York City

49. Boston

50. Washington, D.C.

All these areas, except for Riverside, also ranked in the top 10 for wellness and culture, which measured racial diversity and representation, access to healthcare, food and community services, and proximity to arts and entertainment establishments. However, the wellness and culture category didn't carry enough influence to help these cities rank higher overall.

At the same time, cities like Jacksonville, Florida, and Kansas City, Kansas made it to the top five for first-time buyers despite ranking below average for culture. Here are the best cities for those buying a home for the first time, according to Bankrate:

5. Jacksonville, Florida

4. Minneapolis

3. Raleigh, North Carolina

2. Kansas City, Kansas

1. Austin, Texas

Of course, not every homebuyer will agree with how any single report ranks an area as "good" or "bad" to purchase a home — which is why some people prefer to set their own criteria to help them decide if an expensive market is worth the hassle.

Riley Arthur, freelance art director and photographer, had moved 13 times in 12 years before buying her first home in Chula Vista in the San Diego area in 2021.

To do that, she and her husband created an elaborate spreadsheet with 26 criteria and assigned ratings to them based on how important they were. The criteria varied from basics, such as cost of living and climate, to things that mattered to the couple personally.

"These categories might not make sense for everyone," Arthur says. "For us, it was important to have an arts and culture scene because we're both artists. Proximity to nature... proximity to an international airport [because] we travel a lot."

The couple was also looking for a place where it may be easier to adopt a child, which they consider their life goal. Once they put together the criteria and ratings, they compiled a list of cities where they wanted to live, as well as "up-and-coming" places. The list ended up containing 58 cities.

"I kept saying, 'I don't care how cool Arkansas is getting, I don't want to live there — why are you putting it on the list?'" Arthur says with a laugh. "But we wanted it to be as expansive as possible."

"We don't regret moving here," she says. "We love living here. I wake up happy."

Trying to purchase a home in an expensive area isn't only for transplants — many prospective homebuyers in the country's most unforgiving markets are trying to stay close to the place where they were born and raised.

Mercedes Gonzalez Mayo, small business owner and content creator, bought her first home in Long Island, New York, with her husband in the summer of 2021. To be able to create the home they wanted, they purchased a highly-distressed ranch in Smithtown.

Gonzalez Mayo knew that moving to a different state would have been much more affordable but it had never been an option. "Our entire family lives in New York and we always wanted to be close to them," she says. "Seeing the price of certain listings in Texas and certain parts of Florida was definitely tempting though — so many beautiful homes at great price points!"

The couple had been saving for a year and a half to make their dream home happen. They also experienced an overheated market enveloped in bidding wars. Gonzalez Mayo describes the home purchasing process as going "through the wringer." To cope with inflated home prices, the hopeful homebuyers focused on locking in a good interest rate. Given the sunken rates that defined the market in 2021, Gonzalez Mayo was able to secure a 2.75% rate on her 30-year mortgage.

Another consideration for the couple was to find a mortgage that would leave them some financial wiggle room to renovate their fixer-upper. They managed to secure a mortgage loan that combined the cost of renovations with the price of the home, but it wasn't as straightforward as applying for a traditional mortgage.

"We had to also bid our job out to contractors and see if we were even able to afford the cost of construction," Gonzalez Mayo says. "If we weren't able to find a contractor, we wouldn't have even been able to purchase the home, and we would have had to start all over. This was an extremely stressful process."

The couple finally moved into their first home in late 2022 after renting and paying for a mortgage simultaneously for seven months.

"We most definitely went a bit over budget at times," Gonzalez Mayo admits, "but we have no regrets because we know we will be happy here for a long time, if not forever."

If you're also set on living in a high-cost area, homeownership might feel out of reach. You're probably already paying expensive, ever-increasing rent, so saving for a house may seem like an impossible task.

At the same time, buying in a place like New York City or most of Southern California can help you escape those seemingly-constant rent hikes, as well as acquire an asset that's highly likely to appreciate.

"You buy in New York for the opportunities," says Sarah Cotty, a real estate agent at Serhant. "It's an investment that can live on forever."

With that in mind, here's how you can approach buying a home in a challenging market:

1. Think whether it makes sense to buy or keep renting

Buying a home is a dream for many, but it's also a huge purchase — and a huge responsibility. Consider how committed you are to settling down in the area. Once you're a homeowner, it will be much harder to pack up and move if, say, you receive a great job offer somewhere else.

Plus, depending on where you are, owning can be considerably more expensive than renting as far as your monthly expenses go. For instance, a report released in 2022 by John Burns Real Estate Consulting found that owning a single-family home costs $839 more per month on average than renting it. At the same time, when you own, you're also paying to build equity in your house and protect yourself from rent hikes.

Make sure you consider your personal and financial situation to determine whether buying or renting makes more sense for you.

2. Calculate your budget

If you're set on buying, it's time to figure out how much you can afford. The conventional advice is to ensure your mortgage loan is less than three times your income. In expensive areas, however, that might not be realistic unless you're a high earner.

For instance, according to the U.S. Census Bureau, the median household income in Washington, D.C. is $93,547. The median home price, on the other hand, is $643,000 as of writing, Redfin reports. That's almost seven times the median income.

In such places, you might need to get creative to avoid becoming "house-poor." This includes taking on a side hustle to bump your income and considering certain trade-offs. For example, if you work from home or live in an area with decent public transportation, could you give up your car to afford a home? You might also consider a more modest house or a fixer-upper so that you can pay less and put in some "sweat equity" to improve the home.

3. Consider less expensive neighborhoods

Once you figure out your budget, you might realize that buying a home in the heart of the city or your favorite area is out of reach. That's a sign you should consider more affordable neighborhoods.

For example, Mercedes Gonzalez Mayo had found her fixer-upper in Smithtown, where she knew she'd get more bang for her buck than in an area like Queens. Similarly, Riley Arthur purchased her home in Chula Vista rather than a much more expensive San Diego, which is just 10 miles away.

4. Save for a down payment

Take the time to save for a down payment. The more you can put down, the less expensive your mortgage will be. For example, if you're buying a $500,000 home at a 5% interest rate and put 10% down, your mortgage payment will be around $2,416 (before taxes and any additional fees). If you only put 5% down, however, your mortgage will cost you $2,550 per month.

Make sure to keep your down payment fund in a high-yield savings account. This way, your down payment savings will grow quicker, thanks to compound interest, and you'll be able to keep adding money at any time. CNBC Select ranked the best high-yield savings accounts, and here are some of our top picks:

Of course, saving up a big sum for a down payment may be a tall order when home prices inhabit the stratosphere. For that reason, it may be a good idea to explore down payment assistance programs in your area. These programs can be extremely valuable for first-time homebuyers. As an example, the HomeFirst Down Payment Assistance Program provides eligible homebuyers in New York City with up to $100,000 toward the down payment or closing costs.

5. Improve your credit score

Your credit score plays a crucial role when a mortgage lender determines your interest rate. Your interest rate, in turn, has a big impact on how much you'll pay each month and over the life of the loan.

Work on increasing your credit score before you apply for a mortgage. Stay on top of your bills and pay down your debt. The latter will also help improve your debt-to-income ratio (DTI), another factor mortgage lenders consider. Avoid applying for new credit until you close on a home.

Track your credit score with a credit monitoring service to see how you're doing. CNBC Select recommends CreditWise® from Capital One and Experian free credit monitoring as the best free options.

6. Shop around for a mortgage lender

As we've mentioned, a mortgage interest rate plays a key part in home affordability. To get the lowest rate you can, it's best to get preapproved by several lenders and compare their offers.

Remember that the interest rate, while important to the mortgage's overall cost, isn't the only thing you should look at when picking a lender. Additional fees are another thing to pay attention to, as well as the types of loans offered.

For first-time homebuyers, we recommend Rocket Mortgage if you have a lower credit score and Ally Bank if you want to avoid lender fees.

7. Work with a real estate agent specializing in first-time homebuyers

"Make sure that you have a broker that's seasoned and experienced on your side," Cotty says.

As a homebuyer, Gonzalez Mayo agrees. "Finding a great, patient and knowledgeable real estate agent will make this process a lot easier and enjoyable for you. Working with a great agent is key and helped us tremendously during this process."

Interview a few agents before committing to one. You want someone who frequently works with first-time homebuyers and understands their needs and pain points. It's also best to work with a person knowledgeable about the area so they can offer helpful advice.

Further, you want to avoid feeling pressured or rushed — your real estate agent must be in your corner and help you reach a decision you'll be happy with. Buying a home can be as emotionally grueling as it is exciting, so it helps to always feel supported.

Not every first-time homebuyer has the opportunity — or the desire — to move to an area where it's easier to buy. Only you can decide where you want to put down the roots. And if the area happens to be a challenging market, there are steps you can take to rise to that challenge.

Look for compromises in your budget and location and work on your credit profile. Take the time to save up enough money for a down payment before talking to lenders and real estate agents. Try to be patient and not rush the process. After all, this might be one of the largest and most important purchases you'll ever make.

"Buying a home is a marathon and not a sprint," Gonzalez Mayo says. "Although the process can be stressful at times, you should also enjoy every moment of it because this is such a huge milestone in life."

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