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LendingTree Ranks Best Cities for First-Time Homebuyers

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It’s hard out there for a first-time homebuyer. Although the national housing market is beginning to cool and prices are beginning to fall, it can still be a challenge for first-time homebuyers to navigate the housing market.

LendingTree, the nation’s leading online loan marketplace, has ranked the 50 largest metropolitan areas in the United States by how friendly they are for first-time homebuyers. The factors that we looked into to help make this ranking are:

  • Average down payment amount
  • Average down payment percent
  • Share of buyers using an FHA mortgage
  • Average FHA down payment as a percentage of average down payment for all loans (This measures how much homebuyers are saving by using FHA loans.)
  • Percentage of buyers who have credit scores below 680
  • The Housing Opportunity Index score for the area. This measures the percentage of houses affordable to middle-income families.

Several down payment variables are included in our ranking because research has identified down payments as the biggest obstacles to homeownership. The down payments variable in this study are not precisely correlated, but each can have an impact on how easy it is for a first-time buyer to find a home.

Key findings

  • Pittsburgh, Cleveland and Oklahoma City offer first-time homebuyers the easiest time purchasing a home. While these metros may not necessarily have the lowest credit score requirements or down payments in the country, they consistently rank highly across all six metrics that were considered in this study. Overall, Pittsburgh and Cleveland are tied for first place, while Oklahoma City is third.
  • Oklahoma City, Cleveland and Memphis, Tenn., have the lowest down payments. The average down payment in these three areas is $32,000, which is considerably lower than the average down payment for the top 50 metros overall — slightly higher than $50,000. This means buyers in these areas likely don’t need to save up as much to make a down payment as they might in other areas.
  • Salt Lake City, Oklahoma City and San Antonio had the lowest down payment percentages out of the top 50 largest metros. These three areas have an average down payment percent of 14%, which is two points lower than the average across all 50 metros surveyed.
  • Birmingham, Ala., Detroit and Columbus, Ohio, had the highest share of buyers who used an FHA mortgage. Nearly 40% of buyers in these cities used FHA financing to secure a mortgage. This is not surprising considering that a large portion of buyers in these areas had credit scores below 680.
  • San Jose, Calif., San Francisco and New Orleans were the metros that saved the most by using FHA financing. In each of these metros those who used FHA financing had down payments that were less than 30% of the average down payment in the area.
  • Detroit, Birmingham, Ala. and Cleveland have the largest share of homebuyers with credit scores below 680. People who live in these cities can probably secure a loan with a lower credit score than they might need in some of the other cities on the list.
  • Indianapolis, Cincinnati and Cleveland contain the largest share of homes that are affordable to median income families.

Best cities for first-time homebuyers

Pittsburgh

Average down payment amount: $34,049
Average down payment percentage: 15%
Share of buyers using an FHA mortgage: 36.5%
Average FHA down payment as a percentage of average down payment for all loans: 31.2%
Percentage of buyers who have credit scores below 680: 41.3%
HOI Index Score: 78.4

Cleveland

Average down payment amount: $32,775
Average down payment percentage: 15%
Share of buyers using an FHA mortgage: 32.95%
Average FHA down payment as a percentage of average down payment for all loans: 32.7%
Percentage of buyers who have credit scores below 680: 42.8%
HOI Index Score: 82.2

Oklahoma City

Average down payment amount: $30,234
Average down payment percentage: 13%
Share of buyers using an FHA mortgage: 25.4%
Average FHA down payment as a percentage of average down payment for all loans: 32.8%
Percentage of buyers who have credit scores below 680: 36.9%
HOI Index Score: 79

Worst cities for first-time homebuyers

Los Angeles

Average down payment amount: $95,418
Average down payment percentage: 18%
Share of buyers using an FHA mortgage: 14.1%%
Average FHA down payment as a percentage of average down payment for all loans: 33.6%
Percentage of buyers who have credit scores below 680: 9.2%
HOI Index Score: 9.1

Denver

Average down payment amount: $74,317
Average down payment percentage: 19%
Share of buyers using an FHA mortgage: 15.5%
Average FHA down payment as a percentage of average down payment for all loans: 38.8%
Percentage of buyers who have credit scores below 680: 16.8%
HOI Index Score: 51.5

San Francisco

Average down payment amount: $128,627
Average down payment percentage: 21%
Share of buyers using an FHA mortgage: 9.8%
Average FHA down payment as a percentage of average down payment for all loans: 27.1%
Percentage of buyers who have credit scores below 680: 11.4%
HOI Index Score: 11.1

What should first-time buyers do?

In addition to tight inventory boosting prices in many markets, first-time homebuyers must now contend with rising mortgage interest rates reducing their buying power. As affordability declines, borrowers should consider all the programs available to assist them in becoming homeowners, including FHA loans.

Methodology

The factors used to rank the cities in this study were chosen for the following reasons:

  • Average down payment amount. Down payments are usually a major hurdle for first-time homebuyers to overcome, as many struggle to come up with the amount of cash necessary to make a down payment. The lower the down payment is, the easier it is to afford a home.
  • Average down payment percentage. A down payment percentage refers to how large a down payment is in proportion to the total cost of a home. If you have a lower down payment percentage, then you don’t need as much cash for your down payment.
  • Share of buyers using an FHA mortgage. Buyers using FHA financing are required to put down as little as 3.5% toward a down payment, and have higher limits on their debt-to-income ratios. By using FHA financing, first-time homebuyers can not only increase the likelihood that they are approved for a mortgage loan, but they can also potentially get a better rate on that loan.
  • Average FHA down payment as a percentage of average down payment for all loans. FHA loans are more valuable in some areas than others. This measure of the FHA benefit tells us how much FHA borrowers truly saved on down payments. For example, if the average down payment for those using FHA loans in an area is 40% of the average down payment for all loans, then that means that those who used FHA loans saved 60% compared with those who did not.
  • Percentage of buyers who have credit scores below 680. First-time buyers often have lower credit scores than repeat buyers. Therefore, first-time buyers are usually more competitive in areas where buyers have credit that is below 680.

The Housing Opportunity Index score for the area. The HOI measures the share of homes sold that are affordable to median income families in a given area. The higher the HOI score, the more homes in the area are affordable to median income families. By using the HOI, our ranking elevates cities that are more affordable to middle-income families.

 


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