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LendingTree Ranks Best Metros for First-Time Homebuyers

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With home prices skyrocketing, housing markets across the country are highly competitive. This can be challenging for would-be homebuyers, especially first-timers who are generally less prepared to take on local market competition.

To see where first-time homebuyers might have an easier time purchasing a home, LendingTree ranked the nation’s 50 largest metropolitan areas by how friendly they are for those buying their first home. We considered the following factors in our ranking:

  • Average down payment amount
  • Average down payment percentage
  • Share of buyers using an FHA loan
  • Percentage of buyers who have credit scores below 680
  • Share of homeowners who spend 30% or more of their monthly income on housing costs

Each of the categories above play an important role in how challenging the homebuying experience can be. For more information about how these categories play into LendingTree’s overall ranking, see the methodology section below.

Key findings

  • Kansas City, Mo., Oklahoma City, Okla., and Louisville, Ky., are the metros that are most friendly to first-time homebuyers. Though each of these areas fall near the middle of the pack when it comes to the share of buyers using FHA loans, their high rankings across other categories make them appealing to first-timers.
  • Oklahoma City, Kansas City and Buffalo, N.Y., have the lowest down payments in our study. The average down payment in these three areas is $33,188, which is considerably lower than the average down payment of $63,216 across all 50 metros. 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 parts of the country.
  • Kansas City, Salt Lake City and Oklahoma City had the lowest down payment percentages out of the top 50 largest metros. These three metros have an average down payment percent of 10.4%, which is about 4 basis points lower than the average across all 50 metros.
  • Memphis, Tenn., Las Vegas and Virginia Beach, Va., are the metros with the largest share of buyers who have credit scores below 680. Slightly more than a quarter of buyers in these areas have credit scores below 680. This suggests that people who live in these metros have a better chance of securing a loan with a lower credit score than they might need in other parts of the country.
  • At an average of 22.6%, San Diego, Los Angeles and Sacramento, Calif., had the highest share of buyers who used an FHA loan. FHA loans can be especially helpful for cash-strapped, first-time buyers in expensive areas like these, as this loan program requires a smaller down payment than some other loan types.
  • Indianapolis, Raleigh, N.C., and Buffalo contain the smallest share of households that are spending 30% or more of their monthly income on housing. Buyers in these areas can generally expect their mortgage payments to be relatively affordable. That’s good news for first-time buyers who may not be earning as much as more experienced buyers.

Best metros for first-time homebuyers

1. Kansas City, Mo.

  • Average down payment amount: $30,219
  • Average down payment percentage: 10.1%
  • % of buyers with a credit score below 680: 21.1%
  • Share of buyers using an FHA loan: 10.2%
  • Share of households spending 30% or more of their income on housing: 20.7%

2. Oklahoma City, Okla.

  • Average down payment amount: $28,777
  • Average down payment percentage: 10.7%
  • % of buyers with a credit score below 680: 20.8%
  • Share of buyers using an FHA loan: 11.6%
  • Share of households spending 30% or more of their income on housing: 22.6%

3. Louisville, Ky.

  • Average down payment amount: $46,375
  • Average down payment percentage: 13%
  • % of buyers with a credit score below 680: 20.5%
  • Share of buyers using an FHA loan: 10.1%
  • Share of households spending 30% or more of their income on housing: 21.7%

Worst metros for first-time homebuyers

1. New York

  • Average down payment amount: $91,453
  • Average down payment percentage: 16.5%
  • % of buyers with a credit score below 680: 7.2%
  • Share of buyers using an FHA loan: 11.6%
  • Share of households spending 30% or more of their income on housing: 39.1%

2. San Jose, Calif.

  • Average down payment amount: $156,816
  • Average down payment percentage: 16.3%
  • % of buyers with a credit score below 680: 5.1%
  • Share of buyers using an FHA loan: 16.8%
  • Share of households spending 30% or more of their income on housing: 34.1%

3. San Francisco

  • Average down payment amount: $151,248
  • Average down payment percentage: 16.2%
  • % of buyers with a credit score below 680: 5.6%
  • Share of buyers using an FHA loan: 18.3%
  • Share of households spending 30% or more of their income on housing: 35.6%

Tips for first-time homebuyers

In a housing market as hot as the one we’re experiencing across the country, first-time homebuyers are likely to face many significant challenges in the homebuying process. Fortunately, there are a few tips and tricks that can potentially help first-timers make their homeownership dream a reality.

  • Shop around for a mortgage before committing. Different mortgage lenders can offer different interest rates to borrowers, even if they have similar credit profiles. As a result, the first lender you go to may not be the one who offers you the best rate. By shopping around, you can increase your odds of finding the lowest possible rate. The lower your rate, the more you can save on your monthly mortgage payments.
  • Save up as much as you can for a down payment. The more money you have to put toward a down payment on a house, the less money you have to borrow for your mortgage. Not only will lenders be more likely to approve your loan, you may also get a better rate.
  • Consider different loan options. Even outside of FHA loans, there are numerous loan programs that can be helpful for first-time buyers. For example, VA loans and USDA loans are two options for those with limited cash for a down payment, or less-than-stellar credit.

Methodology

LendingTree determined the overall ranking for this study by averaging the individual rankings in each category together, and then ordering them from lowest to highest.

Below is a breakdown of each factor chosen to rank the cities in this study, as well as the reasoning behind each choice:

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, you don’t need as much cash for your down payment.

Share of buyers using an FHA loan

Buyers using a loan backed by the Federal Housing Administration (FHA) are required to make a minimum 3.5% down payment in most cases, and have higher limits on their debt-to-income (DTI) ratios. By using FHA financing, first-time homebuyers can not only increase the likelihood that they are approved for a mortgage, but they may also get a better rate on that loan.

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 more buyers have sub-680 credit scores.

Share of homeowners who spend 30% or more of their monthly income on housing costs

As a rule of thumb, homeowners should try to spend less than 30% of their monthly income on housing costs to avoid becoming excessively cost-burdened. Housing markets where homeowners spend a larger share of their income on housing costs often present greater challenges for first-time homebuyers who often have smaller incomes than their more seasoned homebuying peers.

 

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