What Home Price Can the Typical First-Time Home Buyer Afford?

what home price can first-time home buyers afford

Zillow predicts 2019 will bring higher mortgage rates and continued growth in home values, a combination that creates a giant hurdle for the first-time home buyer.

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Coming up with a down payment is a challenging proposition for the first-time home buyer, who lacks proceeds from a previous home sale to put toward a home purchase. And rising rents make it difficult to save for a down payment, which is a main reason why first-time buyers’ down payments are typically closer to 14.5 percent than the traditional 20 percent.

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So how much home can a first-time home buyer really afford? Assuming that an individual qualifies for a 30-year fixed-rate mortgage at a 5 percent interest rate, the highest price a first-time buyer can afford nationwide (without spending more than 30 percent of his or her income on mortgage payments) is $338,000. Caveat: This price tag will vary from market to market.

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Looking at the numbers in a different way, the first-time home buyer can afford about 68 percent of all homes in the U.S. Among the 50 largest U.S. metros, first-time buyers can afford the highest share of listings in St. Louis (84 percent), Pittsburgh (82 percent), Hartford, Conn. (82 percent) and Buffalo, N.Y. (81 percent) and the smallest share of listings in Los Angeles (25 percent), San Jose (28 percent) and San Diego (30 percent).

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Pleasantly surprised by these stats? First-time home buyers earn more than the median income overall, which is about $30,000 higher than that of the typical non-buyer, according to the 2018 Zillow Group Report on Consumer Housing Trends. Breaking into the market is challenging, but this higher income helps first-time buyers set aside money for a down payment to get a foot in the door.