Homeownership is one of the best ways to build wealth. According to the U.S. Census Bureau, homeowners’ median net worth is 80 times larger than renters’ median net worth. But for many people, it’s just too hard to own when factoring in the monthly commitment, ongoing maintenance, and unexpected expenses, not to mention meeting the 20% down payment requirement, which is often considered the worst financial barrier to homeownership.
As financial institutions across the country tighten their lending standards due to historically low interest rates and the COVID-19 pandemic, more and more households, especially low- and middle-income households, are struggling to come up with funds to meet the 20% down requirement.
To better understand the financial barriers homebuyers across the country face, we at RealtyHop took a look at the years required to save up for a down payment in the top 125 most populous cities in the U.S.
- Los Angeles tops other cities in the country with the worst barrier to homeownership. Families in L.A. have to save 20% of their income for 13.8 years to enter homeownership and qualify for a loan.
- On the other hand, it takes only 1.62 years for a family in Detroit to afford the 20% down payment on a home.
- California outranks all other states, with 7 cities ranked in the top 10, including Los Angeles, Glendale, San Francisco, Oakland, Long Beach, Huntington Beach, and San Diego.
- Generally, it’s easier for a household to meet the 20% down payment requirement in the Midwest and South. In Chicago, the third most populous U.S. city, it takes 5.6 years for a household to qualify for a mortgage with 20% down. This number is 7.2 years lower than the largest city, New York, and 8.2 years lower than Los Angeles.
The map below highlights the median asking price, median income, as well as years required to save up for a 20% down payment in the most populous cites in the U.S. Click on the circle markers on the map below to learn more.
The 5 Cities with the Biggest Barrier to Homeownership
1. Los Angeles, CA
With a median asking price of $929,499 and median household income of $67,418, Los Angeles tops all other populous cities as the worst city when it comes to barriers to owning. A family will have to save 20% of their household income for 13.8 years to qualify for a loan with 20% down.
2. New York, NY
With a median asking price of $889,000 and median household income of $69,407, it takes potential homebuyers in New York 12.8 years to have enough cash in the bank to meet the minimum down payment requirement. Of course, for some condo units, the down payment could be as low as 10%, but it is becoming less common these days as lenders tighten their mortgage requirements.
3. Glendale, CA
According to the most recent Census ACS data, the homeownership rate in Glendale is only 32.4%, 35% below the national homeownership rate, and it is not easy for potential homebuyers to own there. With a median asking price of $875,000 and median household income of $68,392, it takes 12.8 years for a household to accumulate enough cash for a home.
4. San Francisco, CA
It is not surprising to find San Francisco on the list as one of the cities with the worst barrier to accessing homeownership. After all, it is the most expensive city in the U.S. despite a median household income of $123,859. It takes homebuyers in the Golden Gate City 11.3 years to build up a 20% down payment.
5. Boston, MA
While the Boston condo market has been hit hard by the pandemic, the city remains one of the most competitive housing markets in the U.S. It takes 9.7 years for homebuyers in Boston to save up for a home with a median asking price of $769,900 and a household income of $79,018.
The 5 Cities with the Lowest Barrier to Homeownership
1. Detroit, MI
Detroit has been considerably more affordable relative to other housing markets. Based on a median asking price of $55,000 and an income of $33,965, it takes 1.6 years for a household to meet the minimum down payment in Detroit. However, that does not mean that homebuyers don’t face other challenges and barriers. Lenders in Detroit continue to avoid low-priced properties, making it harder for low-income residents to own.
2. Akron, OH
Of the 86,035 occupied housing units in Akron, around 56.6% are occupied by owners, thanks to low barriers to owning. Based on a median asking price of $99,500 and a median household income of $41,013, homebuyers in Akron only need to save 2.4 years to put 20% down on a home.
3. Aurora, IL
Compared to other markets with low barriers to homeownership, Aurora is less affordable, but the relatively high median household income has contributed to the low barrier to owning. Currently, the median asking price in Aurora sits at $215,999. With a median household income of $73,071, it takes just under 3 years for potential homebuyers to save up enough cash for a home.
4. Des Moines, IA
With a median asking price of $161,900 and median household income of $53,859, Des Moines is one of the U.S. cities with the lowest barrier to accessing homeownership. It takes 3 years for a household to accumulate enough cash to put down 20% on a home.
5. Wichita, KS (TIE)
Wichita is considered one of the most affordable cities in the U.S., thanks to its favorable local tax rates and relatively low housing prices. For any families looking to enter homeownership in Wichita, it takes 3.2 years to save up for a home and afterward a reasonable 19.6% of annual income to keep the property, according to the most recent RealtyHop Housing Affordability Index.
5. Cleveland, OH (TIE)
With a median asking price of $102,000 and median household income of $32,053, Cleveland is one of the friendliest cities when it comes to barriers to owning. It takes 3.2 years for a family in Cleveland to save 20% of their household income for a home.
This report examines the barrier to homeownership across the top 125 U.S. cities by population. We calculated the median asking price by city using over 3.3 million residential sales listings on RealtyHop between December 1, 2019, and November 30, 2020. To limit the scope of this study and better reflect the prices U.S. households expect to see when buying, the following property types were included when calculating the median: condo, co-op, single-family house, house, residential, and townhouse. Any listings classified as “land” are excluded from this study.
To calculate the years required to save up for the down payment on a home, we first collected the median household income data by city from the most recent ACS data from the U.S. Census Bureau and assumed that a household saves 20% of its annual gross income each year. We then calculated the years required using the 20% of the median asking price (down payment) and the amount saved per annum.
Tips for Getting a Mortgage
Our research has shown that in major cities in the U.S., especially the most populous ones with job opportunities, owning is not easy. Below are a few tips that might help you along the way.
- Make sure you start saving now — While 20% is generally the requirement to qualify for a loan, the more you put down, the better, as your outstanding principal balance would be lower, which in turn brings down your monthly obligation.
- Know your credit score — While you can still get approved even with a credit score of 580 (which is too low for someone who wants to buy a house/apartment), the higher your credit score is, the more likely that you will be approved for a mortgage and enjoy a lower interest rate. Compare rates here and find out if you qualify for a loan.
- Keep track of your income, expenses, as well as tax filing documents — If you are a self-employed homebuyer, you are required to submit your tax returns for the previous two years, and the mortgage lender will take your average income for that period into account to see if you are qualified for a mortgage. It is, therefore, crucial that you keep track of your income and expenses.
- Choose a mortgage broker — While it might seem straightforward to go with the bank offering you the lowest rate, sometimes lower rates and fees mean poor service and lack of transparency. Make sure that you shop around and fully understand the application process and the mortgage products they offer.