2018’s Best & Worst Cities for First-Time Home Buyers
2:01 AMPosted by: Richie Bernardo
Buying a home for the first time is an exciting and important milestone for many Americans. Their purchases make up a sizable chunk of the market, too. In 2017, 38% of all U.S. single-family home purchases were made by first-time buyers.
The search for a first home requires careful consideration of a number of factors. Buyers must balance what they want and need with to what they can afford. Often, people begin searching for their dream homes without a realistic idea of market prices, interest rates or even their eligibility to get a mortgage.
Where a home is located is just as important as what features it has. If the neighborhood is unpleasant, it can sour the experience of a great home. Potential buyers may want to narrow their search down to an area with a good reputation before getting into housing details.
To simplify the process, WalletHub compared 300 cities of varying sizes across 27 key indicators of market attractiveness, affordability and quality of life. Our data set ranges from cost of living to real-estate taxes to property-crime rate. Read on for our findings, insight from a panel of experts and a full description of our methodology.
Main Findings Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/5564/geochart-homebuyer.html" width="556" height="347" frameBorder="0" scrolling="no"></iframe> <div style="width:556px;font-size:12px;color:#888;">Source: <a href="https://ift.tt/2uq2Bcs> Best Places for First-Time Home Buyers
| Rank (1= Best) | Large Cities (Score) | Rank (1= Best) | Midsize Cities (Score) | Rank (1= Best) | Small Cities (Score) |
|---|---|---|---|---|---|
| 1 | Tampa, FL (65.79) | 1 | Boise, ID (64.69) | 1 | Broken Arrow, OK (67.09) |
| 2 | Colorado Springs, CO (61.90) | 2 | Grand Rapids, MI (64.65) | 2 | Centennial, CO (64.74) |
| 3 | Raleigh, NC (61.65) | 3 | McKinney, TX (64.26) | 3 | Thornton, CO (64.49) |
| 4 | Columbus, OH (61.45) | 4 | Cary, NC (64.03) | 4 | Frisco, TX (64.26) |
| 5 | Pittsburgh, PA (61.37) | 5 | Gilbert, AZ (63.98) | 5 | Kenosha, WI (63.91) |
| 6 | Phoenix, AZ (60.41) | 6 | Chandler, AZ (63.92) | 6 | Allen, TX (63.45) |
| 7 | Denver, CO (60.08) | 7 | Peoria, AZ (63.80) | 7 | Arvada, CO (63.37) |
| 8 | Minneapolis, MN (59.96) | 8 | Orlando, FL (63.78) | 8 | Roseville, CA (63.07) |
| 9 | Las Vegas, NV (59.68) | 9 | Overland Park, KS (63.51) | 9 | Norman, OK (62.97) |
| 10 | El Paso, TX (59.59) | 10 | Scottsdale, AZ (62.69) | 10 | Greeley, CO (62.95) |
| 11 | Mesa, AZ (59.06) | 11 | Fort Collins, CO (62.54) | 11 | Wilmington, NC (62.71) |
| 12 | Aurora, CO (58.86) | 12 | Cape Coral, FL (61.74) | 12 | Longmont, CO (62.61) |
| 13 | Atlanta, GA (58.83) | 13 | Madison, WI (61.41) | 13 | Charleston, SC (62.57) |
| 14 | Sacramento, CA (58.79) | 14 | Henderson, NV (61.22) | 14 | Murfreesboro, TN (62.07) |
| 15 | Charlotte, NC (58.44) | 15 | Chesapeake, VA (60.96) | 15 | Westminster, CO (61.89) |
| 16 | Virginia Beach, VA (58.14) | 16 | Augusta, GA (60.83) | 16 | Surprise, AZ (61.69) |
| 17 | Oklahoma City, OK (57.91) | 17 | Des Moines, IA (60.83) | 17 | Hampton, VA (61.38) |
| 18 | Omaha, NE (57.54) | 18 | St. Petersburg, FL (60.39) | 18 | Livonia, MI (61.01) |
| 19 | Lexington, KY (57.29) | 19 | Lincoln, NE (60.23) | 19 | Pueblo, CO (60.90) |
| 20 | Nashville, TN (57.14) | 20 | Plano, TX (60.06) | 20 | Spokane Valley, WA (60.87) |
| 21 | Milwaukee, WI (56.57) | 21 | Grand Prairie, TX (60.03) | 21 | Joliet, IL (60.72) |
| 22 | Philadelphia, PA (56.22) | 22 | Akron, OH (59.88) | 22 | Green Bay, WI (60.47) |
| 23 | Austin, TX (56.08) | 23 | Winston-Salem, NC (59.82) | 23 | Naperville, IL (60.30) |
| 24 | Jacksonville, FL (55.86) | 24 | Newport News, VA (58.88) | 24 | Dearborn, MI (60.28) |
| 25 | Tucson, AZ (55.77) | 25 | Richmond, VA (58.52) | 25 | Roswell, GA (60.17) |
| 26 | Bakersfield, CA (54.89) | 26 | St. Paul, MN (58.45) | 26 | Boca Raton, FL (59.95) |
| 27 | San Antonio, TX (54.76) | 27 | Salt Lake City, UT (58.21) | 27 | Roanoke, VA (59.69) |
| 28 | Kansas City, MO (54.50) | 28 | Elk Grove, CA (58.05) | 28 | Yakima, WA (59.59) |
| 29 | Wichita, KS (54.47) | 29 | Reno, NV (57.68) | 29 | Richardson, TX (59.57) |
| 30 | Louisville, KY (53.96) | 30 | Glendale, AZ (57.59) | 30 | Cedar Rapids, IA (59.24) |
| 31 | Fort Worth, TX (53.84) | 31 | Fort Wayne, IN (57.39) | 31 | Denton, TX (58.87) |
| 32 | St. Louis, MO (53.34) | 32 | Vancouver, WA (57.37) | 32 | Warren, MI (58.72) |
| 33 | Tulsa, OK (52.37) | 33 | Spokane, WA (57.29) | 33 | Vacaville, CA (58.70) |
| 34 | Fresno, CA (52.11) | 34 | Cincinnati, OH (57.24) | 34 | Clearwater, FL (58.70) |
| 35 | Riverside, CA (51.72) | 35 | Alexandria, VA (57.23) | 35 | Portsmouth, VA (58.44) |
| 36 | Seattle, WA (51.56) | 36 | Pembroke Pines, FL (57.18) | 36 | Lakewood, CO (58.40) |
| 37 | San Diego, CA (50.96) | 37 | Garland, TX (57.11) | 37 | Davie, FL (58.34) |
| 38 | Albuquerque, NM (50.96) | 38 | Durham, NC (56.97) | 38 | Carrollton, TX (58.21) |
| 39 | Portland, OR (50.91) | 39 | Tacoma, WA (56.81) | 39 | Palm Bay, FL (58.12) |
| 40 | Memphis, TN (50.74) | 40 | Tempe, AZ (56.71) | 40 | Elgin, IL (57.99) |
| 41 | Baltimore, MD (50.71) | 41 | North Las Vegas, NV (56.71) | 41 | Manchester, NH (57.74) |
| 42 | Dallas, TX (50.55) | 42 | Toledo, OH (56.50) | 42 | Sandy Springs, GA (57.36) |
| 43 | Indianapolis, IN (49.93) | 43 | Norfolk, VA (56.22) | 43 | Waukegan, IL (57.28) |
| 44 | Stockton, CA (49.05) | 44 | Aurora, IL (55.79) | 44 | Allentown, PA (57.10) |
| 45 | Chicago, IL (49.01) | 45 | Springfield, MA (55.33) | 45 | Clovis, CA (56.51) |
| 46 | Arlington, TX (48.51) | 46 | Irving, TX (55.02) | 46 | Sterling Heights, MI (56.50) |
| 47 | Anaheim, CA (47.35) | 47 | Lancaster, CA (54.24) | 47 | Miramar, FL (56.47) |
| 48 | San Jose, CA (46.78) | 48 | Irvine, CA (54.07) | 48 | Bellevue, WA (56.46) |
| 49 | Honolulu, HI (46.29) | 49 | Greensboro, NC (53.90) | 49 | Temecula, CA (56.44) |
| 50 | Cleveland, OH (46.03) | 50 | Port St. Lucie, FL (53.60) | 50 | Victorville, CA (56.29) |
| 51 | Long Beach, CA (45.43) | 51 | Rancho Cucamonga, CA (53.41) | 51 | Lakeland, FL (56.16) |
| 52 | Corpus Christi, TX (45.32) | 52 | Columbus, GA (53.21) | 52 | North Charleston, SC (55.81) |
| 53 | New Orleans, LA (45.19) | 53 | Santa Rosa, CA (52.86) | 53 | High Point, NC (55.70) |
| 54 | Santa Ana, CA (45.10) | 54 | Palmdale, CA (52.69) | 54 | Plantation, FL (55.59) |
| 55 | Houston, TX (44.99) | 55 | Amarillo, TX (52.67) | 55 | Hillsboro, OR (55.46) |
| 56 | Boston, MA (43.36) | 56 | Moreno Valley, CA (52.62) | 56 | Murrieta, CA (55.44) |
| 57 | Los Angeles, CA (42.63) | 57 | Fontana, CA (52.58) | 57 | Savannah, GA (55.38) |
| 58 | Washington, DC (41.52) | 58 | Corona, CA (52.17) | 58 | Kent, WA (55.22) |
| 59 | Miami, FL (40.10) | 59 | Huntsville, AL (52.03) | 59 | Renton, WA (55.18) |
| 60 | New York, NY (39.76) | 60 | Ontario, CA (52.03) | 60 | Everett, WA (55.12) |
| 61 | Oakland, CA (38.31) | 61 | Knoxville, TN (51.97) | 61 | Coral Springs, FL (55.02) |
| 62 | San Francisco, CA (37.85) | 62 | Laredo, TX (50.94) | 62 | Davenport, IA (55.00) |
| 63 | Detroit, MI (37.21) | 63 | Little Rock, AR (50.82) | 63 | Visalia, CA (54.87) |
| 64 | Santa Clarita, CA (50.66) | 64 | Boulder, CO (54.58) | ||
| 65 | Springfield, MO (50.65) | 65 | West Palm Beach, FL (54.40) | ||
| 66 | Glendale, CA (50.55) | 66 | Chico, CA (54.20) | ||
| 67 | Worcester, MA (50.51) | 67 | Ann Arbor, MI (54.11) | ||
| 68 | Salem, OR (50.50) | 68 | Erie, PA (53.90) | ||
| 69 | Chula Vista, CA (50.33) | 69 | Athens-Clarke, GA (53.88) | ||
| 70 | Fort Lauderdale, FL (49.74) | 70 | Santa Maria, CA (53.74) | ||
| 71 | Fayetteville, NC (49.48) | 71 | Rialto, CA (53.69) | ||
| 72 | Eugene, OR (49.03) | 72 | Fairfield, CA (53.66) | ||
| 73 | Modesto, CA (49.00) | 73 | Yuma, AZ (53.42) | ||
| 74 | Jersey City, NJ (48.86) | 74 | Beaverton, OR (53.27) | ||
| 75 | Baton Rouge, LA (48.85) | 75 | Peoria, IL (53.16) | ||
| 76 | San Bernardino, CA (48.76) | 76 | Pompano Beach, FL (53.13) | ||
| 77 | Salinas, CA (48.64) | 77 | Tuscaloosa, AL (53.06) | ||
| 78 | Oxnard, CA (48.01) | 78 | Sunrise, FL (52.95) | ||
| 79 | Buffalo, NY (47.94) | 79 | Hollywood, FL (52.90) | ||
| 80 | Hayward, CA (47.35) | 80 | Federal Way, WA (52.88) | ||
| 81 | Fremont, CA (47.30) | 81 | Gainesville, FL (52.82) | ||
| 82 | Pomona, CA (47.17) | 82 | Stamford, CT (52.03) | ||
| 83 | Tallahassee, FL (47.17) | 83 | Mission Viejo, CA (51.94) | ||
| 84 | Oceanside, CA (47.10) | 84 | New Bedford, MA (51.20) | ||
| 85 | Garden Grove, CA (46.68) | 85 | Lowell, MA (51.13) | ||
| 86 | Jackson, MS (46.53) | 86 | New Haven, CT (51.07) | ||
| 87 | Shreveport, LA (46.30) | 87 | Quincy, MA (50.64) | ||
| 88 | Mobile, AL (45.97) | 88 | Lynn, MA (50.60) | ||
| 89 | Huntington Beach, CA (45.55) | 89 | Antioch, CA (50.39) | ||
| 90 | Providence, RI (45.13) | 90 | Concord, CA (50.17) | ||
| 91 | Hialeah, FL (44.81) | 91 | Fall River, MA (50.06) | ||
| 92 | Montgomery, AL (43.49) | 92 | Fort Smith, AR (50.02) | ||
| 93 | Rochester, NY (43.12) | 93 | Springfield, IL (49.95) | ||
| 94 | Yonkers, NY (42.09) | 94 | Simi Valley, CA (49.84) | ||
| 95 | Birmingham, AL (40.84) | 95 | Gresham, OR (49.54) | ||
| 96 | Anchorage, AK (39.61) | 96 | Brockton, MA (49.41) | ||
| 97 | Newark, NJ (39.43) | 97 | Norwalk, CA (49.23) | ||
| 98 | Thousand Oaks, CA (49.20) | ||||
| 99 | Mesquite, TX (49.07) | ||||
| 100 | Santa Clara, CA (49.03) | ||||
| 101 | Carlsbad, CA (48.89) | ||||
| 102 | Richmond, CA (48.81) | ||||
| 103 | Orange, CA (48.79) | ||||
| 104 | Waterbury, CT (48.73) | ||||
| 105 | Carson, CA (48.59) | ||||
| 106 | Hartford, CT (47.99) | ||||
| 107 | West Covina, CA (47.67) | ||||
| 108 | Ventura, CA (47.44) | ||||
| 109 | Miami Gardens, FL (47.27) | ||||
| 110 | Vallejo, CA (47.19) | ||||
| 111 | Escondido, CA (47.10) | ||||
| 112 | Cambridge, MA (46.97) | ||||
| 113 | Bridgeport, CT (46.91) | ||||
| 114 | Dayton, OH (46.91) | ||||
| 115 | Downey, CA (46.55) | ||||
| 116 | Rockford, IL (46.50) | ||||
| 117 | Fullerton, CA (46.33) | ||||
| 118 | Santa Monica, CA (46.24) | ||||
| 119 | Santa Barbara, CA (46.16) | ||||
| 120 | Sunnyvale, CA (45.90) | ||||
| 121 | Compton, CA (45.87) | ||||
| 122 | Albany, NY (45.75) | ||||
| 123 | Pasadena, CA (45.65) | ||||
| 124 | Vista, CA (45.65) | ||||
| 125 | Lansing, MI (44.97) | ||||
| 126 | El Cajon, CA (44.59) | ||||
| 127 | Burbank, CA (44.32) | ||||
| 128 | Torrance, CA (43.91) | ||||
| 129 | Costa Mesa, CA (43.57) | ||||
| 130 | South Gate, CA (43.49) | ||||
| 131 | Inglewood, CA (43.16) | ||||
| 132 | Paterson, NJ (42.95) | ||||
| 133 | Westminster, CA (41.12) | ||||
| 134 | Daly City, CA (41.08) | ||||
| 135 | El Monte, CA (39.98) | ||||
| 136 | Elizabeth, NJ (39.38) | ||||
| 137 | Miami Beach, FL (38.55) | ||||
| 138 | San Mateo, CA (38.27) | ||||
| 139 | Flint, MI (37.36) | ||||
| 140 | Berkeley, CA (35.96) |
Ask the Experts
Purchasing real estate for the first time can be a scary experience for many consumers. But it doesn’t have to be. For advice and insight, we asked a panel of experts to share their thoughts on the following key questions:
- What should first-time home buyers consider when choosing a neighborhood
- How do you know that you are financially ready to buy your first home?
- What do you recommend as the minimum down payment for a first-time home buyer?
- What effect did Trump’s Executive Order increasing the cost of FHA-backed loans have on first-time home buyers?
- How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first-time home buyers?
James Refalo Chair, Finance, Law & Real Estate, California State University, Los Angeles
Sriram Villupuram Associate Professor, Finance, University of Texas at Arlington
Michael 'Mike' MacKenzie Research Associate, Virginia Commonwealth University, L. Douglas Wilder School of Government and Public Affairs
Lindsay J. Thompson Ph.D, Associate Professor, Johns Hopkins Carey Business School
Robert C. Penick Ph.D., Interim Director and Adjunct Professor, Institute for Economic Development and Real Estate Research, University of New Orleans
What should first-time home buyers consider when choosing a neighborhood?
In choosing a neighborhood, first time homebuyers should ask themselves what their priorities are, because they are going to have to live in it. There’s an old adage that works from the investment perspective “location, location, location”, but that ignores many important life details such as commute time to work – they will have to work to pay for the house – crime or school system if they are considering children. And, do they like it. In general, buyers are better off buying smaller properties in good neighborhoods, but that ignores those going through regentrification, which could result in a significant increase in value over time. Ultimately, buyers should be comfortable living where they buy for several years, unless they are getting a deep discount on the property, or are planning to flip it or eventually rent it.
How do you know that you are financially ready to buy your first home?
Financially ready? You can pay it in rent or you can receive equity for your payments. Just don’t over-extend yourself.
What do you recommend as the minimum down payment for a first-time home buyer?
Get the payments down. There are tax savings to interest payments, but I recommend the conventional 20% plus.
What effect did Trump’s Executive Order increasing the cost of FHA-backed loans have on first-time homebuyers?
If the order increases costs, it will decrease the number of loans. Basic economics.
How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?
I live in Southern California. Real Estate has gone through the roof. Possibly a five to ten year moratorium on new residents, that’d be number one. Improving the highway systems and transportation might help, permitting quicker access from more remote areas, and reducing transportation costs. That would make outlying areas more desirable, and reduce buying pressure on major cities such as LA. Effective urban/city planning might also help. LA is a mess. In comparison, cities like New York where everyone works downtown and many live in the suburbs, which facilitates a hub and spoke public transportation system. Maybe if we could move Hollywood to San Bernardino or Riverside Counties, that would move a bunch of wannabee actors out of LA into housing they could afford. But in short, without some massive industry cooperation, there are no easy answers.
Sriram Villupuram Associate Professor, Finance, University of Texas at Arlington
What should first-time home buyers consider when choosing a neighborhood?
Liquidity. First time homebuyers tend to be young and are eventually going to upgrade to a larger home. Therefore they should be able to sell their home with ease in the near or distant future. Neighborhoods with a well-rated school district would be a good place to start.
How do you know that you are financially ready to buy your first home?
When you have enough money for a 20% down payment and the closing costs (which will be in the thousands of dollars depending on the value of the home).
What do you recommend as the minimum down payment for a first-time home buyer?
20%. Unless you are getting a VA loan (applicable only to veterans), banks will demand that you get a Private Mortgage Insurance (PMI) if your down-payment is less than 20%. PMI fees vary from around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the down payment and the borrower’s credit score. For example,
Insurance rate 1.5% per year (Rate varies according to size of down payment, credit score and insurer)
Loan amount $180,000
Annual premium $2700
Monthly premium: $225
Based on purchase of a $200,000 house with a 10 percent down payment, borrowing $180,000. Buyer has a spotty credit history.
If a borrower wishes to refinance again with higher than 8-% loan to value ratio, the new bank would again require the borrower to get PMI.
PMI makes the monthly total payment higher since it worsens your monthly payment burden. To steer clear of PMI, I would recommend borrowers have at least a 20% down payment.
What effect did Trump’s Executive Order increasing the cost of FHA-backed loans have on first-time homebuyers?
The executive order didn’t increase the cost of FHA-backed loans. It got rid of a reduction in fees that was set to take effect in 2017 (if that is what you are asking about) which would have decreased the burden on lower income first time home buyers. I do not have any data to answer this question. If the fees would have been reduced, I would expect it to have decreased the burden on monthly payments for first time home buyers thus qualifying/enabling more of them for homeownership.
How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?
Recently, demand has been outpacing supply in some of the housing markets. One of the main concerns that single family home developers have been voicing lately is the “Impact Fees” that cities charge for real estate development. The developers argue that it has been on the increase lately and that is increasing the cost of homes that they build. Developers argue that for every dollar increase in impact fees, a new home’s value goes up by $5. As a result, we are seeing a decreasing supply of new started come to market. That negatively affects first time homebuyers. Local policymakers could help by putting a cap on impact fees.
Michael 'Mike' MacKenzie Research Associate, Virginia Commonwealth University, L. Douglas Wilder School of Government and Public Affairs
What should first-time home buyers consider when choosing a neighborhood?
It’s important for first-time home buyers to look at transportation costs. Many young home buyers will be moving out of apartments relatively close to their workplaces into homes at the lower end of the market. These homes are often in neighborhoods further from job centers and may require additional travel time and cost. Gas, transit fair, and auto repairs add up. Likewise, a home buyer may not wish to commit to a long commute.
Home buyers should try to spend some time in their potential new neighborhood at different times in the day. Take a walk around. If you have a pet that you walk, you may want a neighborhood with sidewalks. If you have children, you may be wary of living on a busy street. Say hello your potential neighbors if you see them. It's important to understand the neighborhood you may be moving into before making the move.
How do you know that you are financially ready to buy your first home?
Part of being financially ready to purchase a home is financial stability. Savings is important, but having a stable source of income is equally important. Renters should be relatively secure in their jobs with no plans to relocate in the near future. The upfront costs of purchasing a home won’t be recouped for at least a few years, and selling the home before then will likely result in significant financial losses.
On the other hand, many households are financially stable enough to own a home but find themselves unable to sock away enough of each paycheck to save for a down payment. Prospective home buyers who receive help from family are at a significant advantage. But some communities and organizations offer down payment assistance to first-time and disadvantaged home buyers. These programs often cover a significant portion of down payment costs and some portion of closing costs. This allows families who can’t rely upon inheritance or family help for a down payment to access to benefits of home ownership.
What do you recommend as the minimum down payment for a first-time home buyer?
Home buyers with a down payment of less than 20 percent will likely have to pay for mortgage insurance, which can add $50 to $150 to your mortgage cost each month. However, saving a down payment of 20 percent---particularly in a time of slow wage growth and rapid housing cost increases---may not be realistic for many. Home buyers can work with certified housing counselors to better understand their options and their financial situations, often at no charge. These counselors may be able to point prospective home buyers towards down payment assistance programs, credit repair programs, and other resources.
What effect did Trump’s Executive Order increasing the cost of FHA-backed loans have on first-time homebuyers?
Although the broad effect may not be measurable yet given the different dynamics of each housing market, it’s likely that the most financially-constrained prospective first-time home buyers will remain shut out of the market -- particularly given the tight housing supply at the lowest end of the market.
How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?
Down payment assistance and housing counseling programs have been very effective in moving working families from rental units to homeownership. However, broad economic issues remain. Smaller starter homes are in short supply as construction of new units has focused on larger, more expensive homes. Local governments can and should address land use regulations that make construction of dense, affordable neighborhoods difficult.
Preserving existing affordable housing -- both rental and owner units -- is essential, particularly in attractive urban neighborhoods. Local and state governments can utilize federal grants to help aging home owners to maintain their properties, but HUD’s budget remains threatened. Local and state governments should take an active role in monitoring development pressures that threaten affordable units.
Many local governments have created affordable housing trust funds to aid in the development of affordable units. However, the expense of housing construction means that without substantial investment, these funds can’t move the needle.
Community land trusts, such as the Maggie Walker Land Trust in Richmond, can create long-term affordable housing and affordable neighborhoods. In a land trust, the home buyer purchases a house, but the land on which a home is built is owned by the community and leased to the home owner. Because the cost of the land is eliminated from the purchase price, the home is more affordable. Much of the growth in a home’s value -- particularly in urban neighborhoods -- stems from the increasing value of the land on which the home is built. When the land is communally-owned, they may ensure that the unit will remain affordable. Local governments can provide community land trusts with tax delinquent or abandoned parcels.
Addressing the housing needs of lower and middle-income families also requires increasing wages. As long as wages remain stagnant while housing, healthcare, and transportation costs rise, home ownership grow further out of reach for many Americans.
Lindsay J. Thompson Ph.D, Associate Professor, Johns Hopkins Carey Business School
What should first-time home buyers consider when choosing a neighborhood?
Don’t rush. Take your time and have fun. Talk with friends and family about their experiences of buying their first house. Defining the ideal neighborhood for you is somewhat subjective based on personal preferences, life stage, and lifestyle factors. While you may prefer a noisy, busy urban neighborhood when you are young and single, you may be looking for a big fenced back yard and good schools if you and your spouse are raising your kids. You should also remember that buying a house doesn’t mean you are stuck in a neighborhood forever; you can sell your cool downtown condo and move to a farm and grow organic vegetables or raise horses if that’s what you want to do later on in life. But getting that first house positions you for making future real estate transactions that meet your changing lifestyle needs.
Locating your ideal neighborhood requires field research. You can start by exploring neighborhoods where you already like to spend time – visiting friends, eating out, playing in a park, shopping, or working. Do you want a neighborhood where you can greet friends on the street when you walk to the grocery store? Or do you want a private sanctuary where neighbors mind their own business? Neighborhoods also have unique personalities, so you should spend some time driving through your city to get acquainted with the look and feel of each neighborhood. A home is an investment, so you also consider home value trends in each neighborhood: Are home prices trending up or down? Is there an active neighborhood association that stays on top of issues and concerns that can affect property values? A good first house is in the mid-to-low price range of a neighborhood where home values are trending upward, but not too quickly; buying in a neighborhood with quickly rising home values may be dense with speculators and flippers, so if you are looking to settle down in a tight-knit community, that may not be your best choice.
When you’ve picked out four or five neighborhoods that seem like a good fit, watch for open houses. At some point, you will want to select a realtor who is familiar with these neighborhoods and will keep an eye on properties before they are even listed. Block out time for open house tours and get to know the available housing stock in your price range. As you go through each house, have a checklist of “must have” and “nice to have” features that will make the house your home. Look especially for features, like number of bathrooms or sagging rooflines, that can’t be changed without major expense, and don’t be turned off by easily changed features such as hideous paint colors or ugly light fixtures.
How do you know that you are financially ready to buy your first home?
The financial responsibilities of home ownership are more complicated than renting and you will need a steady income stream, savings, and manageable debt to manage the down payment, monthly payments, and maintenance and qualify for a mortgage. Your FICO score is your best friend – a “score” that banks and lenders keep as a record of your financial behavior to determine the level of risk they incur when lending you money. The higher your score, the lower your risk. Stay on top of your credit score and do everything you can to keep it as far above 700 as you can in order to qualify for the best mortgage interest rates and lowest fees. Many banks and credit cards will provide free access to your credit score and advice about improving your credit score. If your FICO score is below 700, you can do your neighborhood research, but don’t apply for a loan until your credit score improves.
In addition to the “sticker price” of a home, there are variable upfront costs that require cash on hand: Down payment, home inspection, closing costs, moving costs, and improvements such as painting and landscaping will eat up your cash reserves. Your realtor can work with you to pre-qualify for a mortgage and prepare a detailed budget that itemizes the upfront costs and monthly cash flow required for home ownership. You will probably qualify for a mortgage with a higher debt load than you need; be wary of taking on a debt load that eats up more than 30% of your monthly income and eats up all of your savings.
One you’ve bought your first home, it will take several years for you to recoup your investment, so if you are likely to be lured by a better job far across the country, you may not be ready for home ownership. It’s usually less costly to break a lease than sell a home on short notice.
What do you recommend as the minimum down payment for a first-time home buyer?
Conventional wisdom suggests a down payment of 20% of the mortgage value, but first-time home buyers are not always in a cash-rich position. With mortgage interest rates at historic lows and a lifetime of future earnings to count on, you may choose to minimize the amount of cash you sink into your first home. Some employers and local governments have special loan assistance programs for first-time home buyers that can help bump up the amount of your down payment. These programs often include conditions such as total loan forgiveness for homeowners who buy homes in certain neighborhoods or remain in their homes for a specific period of time.
Your total debt load should be less than 36% of your gross income and your mortgage lender is likely to have very specific criteria for calculating a mortgage package that includes school loans, car loans, and credit card debt in an assessment of your credit worthiness. Most lenders offer programs with low down payments, but down payments lower than 20% will incur mortgage insurance that will increase your monthly mortgage payment.
What effect did Trump’s Executive Order increasing the cost of FHA-backed loans have on first-time homebuyers?
Since Trump’s Executive Order suspended an Obama administration initiative to reduce the cost of FHA mortgage insurance that never went into effect, the effect on first-time home buyers has been minimal. The Obama initiative to lower the consumer cost of FHA-backed loans would have made home ownership more affordable and enabled more homeowners to qualify for FHA loans.
A more important factor for all home buyers is the easing of prime lending rate restrictions by the Federal Reserve since 2014 after years of historically low rates designed to stabilize the economy and real estate markets following the 2008 financial crisis. As the US economy has recovered from the crisis, rising interest rates and home values combined with lagging wage increases have reduced home ownership affordability in many markets.
How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?
While the US housing market has largely recovered from the 2008 foreclosure crisis, government policies at all levels have been slow to adapt to US housing market changes that, for several reasons, have made home ownership less affordable. Decades of flat lined wages have reduced consumer buying power; the rising cost of raw materials and more stringent health and safety regulations combined with construction labor shortages have bumped up home building costs; increased college debt loads have reduced the number of mortgage-ready first-time homebuyers. Diminishing growth in US housing stock has not kept up with demand and changing consumer preferences. Some housing market analysts are beginning to question the value of home ownership as solid investment vehicle for future generations as it has been in the past.
Urbanization has dramatically changed the economic geography of housing markets, yet federal housing policy initiatives remain limited to hugely diminished HUD subsidies for low-income rentals and FHA and VA lending support for middle-income home ownership large focused on single family dwellings. State governments are largely inattentive to their potential role in shaping a more equitable, affordable housing market and local governments in the most troubled housing markets often lack the tax base to address the factors driving housing affordability.
Housing affordability is highly correlated with housing supply. Housing markets are local and current land use policies and tax structures in many jurisdictions are obsolete. In urban markets, demolition and reconfiguration of residential buildings into fewer units or commercial use has reduced the available housing supply. In exurban and rural markets, mobile homes are a fast-growing portion of the housing stock. Local government zoning, building codes, property taxes, and commercial lending regulations should be changed to encourage higher density housing, transit oriented development, energy efficiency, and mixed use neighborhoods.
Robert C. Penick Ph.D., Interim Director and Adjunct Professor, Institute for Economic Development and Real Estate Research, University of New Orleans
What should first-time home buyers consider when choosing a neighborhood?
Neighborhood items, traffic flow, schools, safety, churches of your choice, recreation needs for the family to come in most cases.
How do you know that you are financially ready to buy your first home?
Never ready to buy borrow as much as you can to get in and start earning some equity instead of rent payments.
What do you recommend as the minimum down payment for a first-time home buyer?
10-20% if possible to get the principal and interest levels down.
MethodologyTo determine the most favorable housing markets for first-time home buyers, WalletHub compared a sample of 300 U.S. cities (varying in size) across three key dimensions: 1) Affordability, 2) Real-Estate Market and 3) Quality of Life.
We evaluated those dimensions using 27 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the most favorable conditions for first-time home buyers. Data for metrics marked with an asterisk (*) were available at the state level only.
Finally, we determined each city’s weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order our sample. Our sample considers only the city proper in each case and excludes cities in the surrounding metro area. Each city was categorized according to the following population-size guidelines:
- Large cities: More than 300,000 people
- Midsize cities: 150,000 to 300,000 people
- Small cities: Fewer than 150,000 people
- Housing Affordability: Triple Weight (~14.29 Points)Note: This metric was calculated as follows: Median House Price / Median Annual Household Income.
- Average Cost of Homeowner’s Insurance: Full* Weight (~4.76 Points)
- Cost of Living: Full Weight (~4.76 Points)
- Cost per Square Foot: Full Weight (~4.76 Points)Note: This metric measures specifically the median list price per average home square footage.
- Real-Estate Tax Rate: Full Weight (~4.76 Points)
- Rent-to-Price-Ratio: Double Weight (~4.44 Points)
- Housing-Market Health Index: Full Weight (~2.22 Points)
- Share of Homes Sold in One Year: Full Weight (~2.22 Points)
- Median Home-Price Appreciation: Double Weight (~4.44 Points)
- Foreclosure Rate: Full Weight (~2.22 Points)
- Share of Mortgage Holders with Negative Equity: Full Weight (~2.22 Points)Note: This metric measures the proportion of mortgage holders whose balance on mortgage is higher than the value of homes.
- Buy vs. Rent Breakeven Horizon: Full Weight (~2.22 Points)Note: The “breakeven horizon” is defined by Zillow as the point, in years, at which buying a home becomes less expensive than renting the same home.
- Share of Listings with Price Cuts: Full Weight (~2.22 Points)
- Share of Housing Units Built between 2010 and 2016: Full Weight (~2.22 Points)
- Building-Permit Activity: Full Weight (~2.22 Points)Note: This metric measures the number of unit permits pulled per 1,000 residents.
- Mortgage Lenders per Capita: Full Weight: Full Weight (~2.22 Points)
- Real Estate Agents per Capita: Full Weight (~2.22 Points)
- Homeownership Rate for Millennials: Full Weight (~2.22 Points)
- Recreation-Friendliness: Full Weight (~3.33 Points)Note: This metric is based on WalletHub’s “Best & Worst Cities for Recreation” ranking.
- Recession Recovery: Full Weight (~3.33 Points)Note: This metric is based on WalletHub’s “Most & Least Recession-Recovered Cities” ranking.
- Weather: Full Weight (~3.33 Points)Note: This metric is based on WalletHub’s “Cities with the Best & Worst Weather” ranking.
- Quality of School System*: Double Weight (~6.67 Points)Note: This metric is based on WalletHub’s “States with the Best & Worst School Systems” ranking.
- Driver-Friendliness: Full Weight (~3.33 Points)Note: This metric is based on WalletHub’s “Best & Worst Cities to Drive in” ranking.
- Job Market: Full Weight (~3.33 Points)Note: This metric is based on WalletHub’s “Best & Worst Cities for Jobs” ranking.
- Total Home-Energy Cost: Full Weight (~3.33 Points)
- Violent-Crime Rate: Full Weight (~3.33 Points)
- Property-Crime Rate: Full Weight (~3.33 Points)
Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Council for Community and Economic Research, U.S. Department of Housing and Urban Development, Zillow, Federal Bureau of Investigation, Insurance Information Institute, AreaVibes, Renwood RealtyTrac and WalletHub research.
from Wallet HubWallet Hub
via Finance Xpress
0 comments