First-time homebuyers in Detroit and Warren can save for a down payment in less than four years, making them areas where first-time buyers can save up a down payment the fastest, according to report released today by Detroit-based Rocket.
Detroit and Warren are followed by Virginia Beach, Va., Fort Worth, Texas, and Indianapolis, Ind., all places where it takes a little more than 4 years for first-time buyers to save for a down payment.
In Warren, a down payment of $8,797 can be saved in 3.1 years. That’s for a home costing $175,940 with a 5 percent down payment and an income of $56,281.
In Detroit, a 5 percent down payment of $7,600 on a house for sale at $152,000 can be saved in 3.9 years on an income of $39,209.
“Saving for a down payment takes years of discipline, which is why receiving the keys is such a meaningful milestone,” says Bill Banfield, chief business officer at Rocket. “For anyone hoping to own a home someday, it’s never too early to understand what buyers are putting down in your market and start building a plan.
“Many first-time buyers are surprised to learn they may qualify for programs that make homeownership more affordable and, in many markets, the idea that you need 20 percent down is simply a myth. Our analysis found that down payments as low as 5 percent to 6 percent are common for conventional loans in some affordable markets.”
At the other end of the spectrum, it can take several decades for aspiring first-time homebuyers in expensive coastal markets to save for a down payment. In New York City, where it takes the longest, it would take a typical household 65 years to save up $265,000, the median first-time homebuyer’s down payment. That’s followed by San Francisco at 57 years, and Los Angeles at 42 years.
Across markets, down-payment percentages and home prices are strongly correlated, according to Rocket. One reason is that larger down payments are often necessary to qualify for mortgages on high-priced homes. By putting more money down and reducing the loan amount, buyers can lower their monthly payment enough to meet a lender’s debt-to-income requirements.
“The time it takes to save up a down payment varies enormously by market,” says Chen Zhao, head of economic research at Redfin, part of Rocket Cos. “Local home prices are driven by local incomes. In more affordable markets, buyers can accumulate a down payment much faster because home prices — and therefore down payment requirements — are significantly lower. That’s helping keep the dream of homeownership within reach for many.”
First-time buyers also may qualify for conventional loans with down payments as low as 3 percent or government-backed loans that require even less upfront cash. While putting more money down can reduce monthly payments and borrowing costs, lower down payment options can significantly shorten the time needed to save and help buyers begin building equity sooner.
A 5 percent down payment is the norm in parts of the Midwest, making saving faster and easier for first-time buyers.
“I always tell my first-time homebuying clients to consider finding a home that’s under budget so they can reserve funds for the additional costs of owning a home, such as regular maintenance and unexpected repairs, which can amount to tens of thousands of dollars,” says
Anne Loehr, a Redfin Premier agent in the Detroit area.
“Many first-time home buyers previously had landlords who took care of all of that. Having the right lender on our team is a huge part of that education and guidance first-timers need. The lender can often even source help with funding the home purchase, such as down payment assistance programs and first-time homebuyer grants.”
