Detroit takes the lead as the city with the lowest barrier to homeownership, according to a recent report by RealtyHop. Prospective buyers in Detroit, earning an average household income of approximately $39,575, can accumulate a 20% down payment in just 2.53 years. This contrasts sharply with cities like Los Angeles and New York City, where saving for a down payment can extend over a decade.
The RealtyHop analysis, which examined over 1.5 million residential listings alongside median household income data from the U.S. Census Bureau, reveals significant disparities in homeownership accessibility across major U.S. cities. While Detroit offers a more attainable path, cities such as Los Angeles present a formidable challenge. In Los Angeles, where the median list price soars to about $1.13 million, a typical household needs to save $1,339 monthly for approximately 14.10 years to secure a 20% down payment.
Moreover, New York City exemplifies the difficulties faced by potential homeowners in expensive markets. The median list price in New York stands at $865,000, necessitating at least a decade of saving by typical buyers to accumulate the necessary funds for a down payment.
"The more expensive real estate is where you want to live, the more you'll probably want to save for a down payment." – Jacob Channel
The study also highlights Cleveland, Ohio, as another promising location for homebuyers. Here, prospective buyers require 3.55 years to save $27,800 for a 20% down payment on a home priced at the median listing of $139,000. This timeframe positions Cleveland as an attractive option for those seeking more affordable homeownership opportunities.
In contrast to these daunting figures, other financial avenues exist to ease the burden of a hefty down payment. Mortgages from the U.S. Department of Agriculture (USDA) offer 0% down payment options for properties in rural areas. Meanwhile, Federal Housing Administration (FHA) loans require as little as 3.5% down from qualifying borrowers, including first-time buyers and those from low- and moderate-income backgrounds or minority groups.
"If you put less money toward a down payment, you're going to end up with a larger loan." – Jacob Channel
Buyers should also be mindful of private mortgage insurance (PMI), which can add significant costs to their housing expenditures. PMI typically ranges from 0.5% to 1.5% of the loan amount annually, influenced by factors such as credit score and total down payment. For instance, on a $300,000 loan, PMI could range from $1,500 to $4,500 per year, translating to monthly costs between $125 and $375.
"That's another kind of payment that might be bundled in with your mortgage that further increases your housing costs." – Jacob Channel
For families with children, saving for a down payment often proves more challenging. A report by Zoocasa indicates that homebuyers with children generally take longer to reach their savings goals compared to those without children. In Detroit, for example, potential homebuyers with children require approximately 20.3 years to amass the funds needed for a 20% down payment from scratch.
"Go as slow or as quickly as you need to, ensure that you're making good choices." – Jacob Channel
Melissa Cohn advises prospective buyers to thoroughly understand their financial capabilities before committing to a purchase.
"It would be important for a buyer to go out and get an understanding of what price point would work for them." – Melissa Cohn
Furthermore, Cohn suggests exploring various strategies to enhance savings potential.
"Can you increase your savings?… Can you save your bonuses every year?" – Melissa Cohn