If you’re planning on buying a home, you might have asked youself how long does it take to save for one. Here are 5 cities with the lowest “barrier to homeownership”!
The time it takes to save for a 20% down payment largely depends on where you live. For instance, in high-cost areas like New York City, a typical buyer might need about 10.85 years to save $173,000 – the equivalent of 20% of the median home price of $865,000, according to a report by RealtyHop, a real estate investment agency.
RealtyHop’s study analyzed the “barrier to homeownership” in the 100 largest U.S. cities. The report factored in median home prices (from over 1.5 million listings) and median household incomes (based on U.S. Census Bureau data), supposing that a household saves 20% of its annual gross income and plans to put 20% down.
Among the cities analyzed, saving for a down payment takes less than four years for the top five ones with the lowest barriers to homeownership. Detroit ranks as the most affordable, with homebuyers with a median household income of $39,575, needing just 2.53 years to save 20% of a $100,000 home.
Cleveland, Ohio, comes next, where saving for a $27,800 down payment (20% of a $139,000 home) takes 3.55 years. The other top 5 cities with low barriers include Baltimore – MD (3.77 years), Buffalo – NY (3.79 years), and Pittsburgh – PA (3.82 years).
Alternatives To A 20% Down Payment
While a 20% down payment is the goal, it’s not mandatory to buy a home. In the third quarter of 2024, the average down payment was 14.5%, with a median amount of $30,300, according to Realtor.com. This is a decrease from 14.9% and $32,700 in the second quarter.
Some mortgage programs offer significantly lower down payment options:
- VA Loans: for qualifying veterans, no down payment is required.
- USDA Loans: for buyers in rural areas, these also require no down payment.
- FHA Loans: these allow qualifying borrowers, including first-time buyers and moderate-income individuals, to put down as little as 3.5%.
A smaller down payment leads to faster homeownership. However, it also means higher monthly mortgage payments. Jacob Channel, an economist at LendingTree, noted that smaller down payments result in larger loans, often requiring private mortgage insurance (PMI). PMI costs range from 0.5% to 1.5% of the loan annually, depending on your credit score and down payment size, according to The Mortgage Reports.
Creating Your Savings Plan
Your down payment savings will depend on your financial situation and where you want to live, says Melissa Cohn, Regional Vice President at William Raveis Mortgage. Here’s what experts suggest:
- Start by building a household budget. Identify how much you earn, spend, and can save monthly. Look for ways to cut expenses or save bonuses.
- Next, research home prices in your preferred area. Understanding the price range can help you set a realistic goal.
- Make sure to factor in the closing costs, which typically range from 2% to 6% of the loan amount. Consult a real estate agent or mortgage broker to estimate these costs for your area.
- Ultimately, set achievable goals and adjust your timeline as needed. Go at your own pace and ensure you’re making informed decisions.