It is not uncommon for consumers to move away from premium parts of town in order to find affordable housing several miles away. This is particularly done by younger and/or less affluent home buyers, and such a strategy helps them reduce their debt-to-income ratios, subsequently helping them qualify for a mortgage. However, one headwind these younger buyers have had to deal with in the past is high down payment.
Even with the job market improving and mortgage interest rates still considerably lower than they were about a year ago, Millennial consumers find themselves grasping at straws when it comes to raising money for down payment. A simplistic explanation would be the rapid increase in home prices that has thankfully moderated in recent months, but then again, experts have pointed out that lower home prices do not necessarily translate to lower down payments. There are other variables to consider, such as the level of competition among lenders, as well as the tendency of financial institutions to prioritize homeowners with more equity.
That said, a new report from RealtyTrac have been released, revealing some insightful statistics on the most affordable housing markets for first-time home buyers. These are markets where down payments are typically in the low to mid-teens in terms of percentage of the home’s value; as a point of reference, the national average percentage of down payment was 14 percent/$32,000 in 2014. As such, these are all affordable markets for middle-class buyers, and especially for Millennial consumers.
Not surprisingly, these are mostly rural markets in the RealtyTrac analytics. In Montgomery County, Tenn., lenders require an average down payment of 11 percent, or about $14,000, for buyers purchasing a home. The market has also seen a 46 percent increase between 2007 and 2013 in millennial-age borrowers, which usually would encompass buyers between 25 and 32.
Franklin County, Ohio is another affordable market, and one that includes Columbus, a major city. The average down payment in Franklin County is 13 percent, or about $16,500 , and the millennial population in the county increased by 22 percent in the last six years.
Commenting on the findings, RealtyTrac vice president Daren Bomquist said that first-time home buyers really should shop around in low-priced markets if they are looking for an affordable first home. “This analysis shows that first-time home buyers have a better shot at buying a home in low-priced markets, not just because of the lower price point but because, on average, buyers are putting down just 12 percent in those markets compared with 24 percent in high-priced markets,” he posited.
There also seems to be a trend of consumers from more premium markets moving to rural parts of town in order to save money, as well as tools that consumers can use to further reduce their down payment. A blog post from Marketwatch that cited the RealtyTrac data related the story of California native Ken Flower, 32, who purchased a house with his wife in Columbus in 2013. At that time, he paid only $10,000 down, or only 5 percent of the home’s value, getting the discount through an Ohio Housing Finance Association grant for first-time home buyers. According to Flower, Columbus turned out to be “a lot more affordable” than California, and the housing market in the area was “significantly more affordable, with great housing stock.”
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