LendingTree released its study on the best cities for first-time homebuyers, ranking the 50 largest metros in the U.S. by how friendly they are for first-time homebuyers.
The factors used for this ranking were average downpayment amount, average downpayment percent, share of buyers using an FHA mortgage, average FHA downpayment as a percentage of average downpayment for all loans measuring how much homebuyers are saving by using FHA loans, percentage of buyers who have credit scores below 680 and the Housing Opportunity Index (HOI) score for the area measuring the percentage of houses affordable to middle-income families.
“Several downpayment variables are included in the ranking because research has identified down payments as the biggest obstacles to homeownership. The downpayments 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,” LendingTree said.
According to the study, Pittsburgh, Cleveland and Oklahoma City offer first-time homebuyers the easiest time purchasing a home. Although these metros may not necessarily have the lowest credit score requirements or downpayments 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, while Oklahoma is third.
Oklahoma City, Cleveland and Memphis, Tenn., have the lowest downpayments. The average downpayment in these three areas is $32,000, which is considerably lower than the average downpayment 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 downpayment as they might in other areas.
Salt Lake City, Oklahoma City and San Antonio had the lowest downpayment percentages out of the top 50 largest metros. These three areas have an average downpayment percent of 14 percent, 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 percent 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 downpayments that were less than 30 percent of the average downpayment 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.
The worst cities for first-time homebuyers showed Los Angeles at No. 1, with an average downpayment amount of $95,418. That was followed by Denver (average down payment amount: $74,317) and San Francisco (average down payment amount: $128,627).
“For first-time buyers, the market should be more welcoming than last year,” LendingTree Chief Economist Tendayi Kapfidze said in the study. “Inventories have picked up a bit, and home price appreciation has slowed. Even mortgage rates are cooperating, having fallen 50 bps from their peak levels of late last year, after being in an upward trend for two years.
“These factors may act to draw more buyers into the market, making it imperative for buyers to be well prepared,” Kapfidze added. “The keys to a successful homebuying experience are saving in advance for the downpayment, making a homebuying budget and sticking to it and shopping for the mortgage by comparing rates with the same care as you shop for the house. LendingTree can help buyers find the mortgage that fits best for them.”