How much do student loan debt and car payments impact first-time homebuyers?
RealtyTrac released an analysis of major U.S. counties – including 34 of the 67 in Florida – based on median home prices and median incomes. The analysis assumed a downpayment of 3 percent, 10 percent and 20 percent.
RealtyTrac's stated goal: To determine how much lower downpayments would help first-time buyers if they must also pay higher monthly mortgage costs after the sale. It assumed a conventional loan that could be sold later to Fannie Mae or Freddie Mac.
"While lower downpayments may help pave a quicker path to homeownership for some prospective homebuyers, a bigger obstacle to homeownership is the additional non-mortgage debt many borrowers bring to the table," says Daren Blomquist, vice president at RealtyTrac.
In the 34 Florida counties studied, RealtyTrac deemed homes affordable for first-time buyers in every county, whether they put down 20 percent or 3 percent, but with a big caveat: Only if the buyer had no additional student loan debt or car payments.
With debt included in the analysis, affordability dropped.
"For borrowers without additional debt, monthly house payments are affordable in more than 90 percent of U.S. housing markets – whether they make a 20 percent or 3 percent downpayment," says Blomquist. "But for borrowers with the additional debt burden of student loans and car payments, monthly house payments are affordable in less than half of U.S. housing markets with a 3 percent downpayment."
Monthly payments are considered affordable in 30 of the 34 counties (88 percent) for buyers with debt who make a 20 percent downpayment, but in four – Miami-Dade, Collier, Martin and Sumter – first-time buyers can't afford the monthly payments even with a hefty downpayment.
However, a 3 percent downpayment doesn't go a long way to make homes more affordable in most counties.
In 25 of the 34 counties RealtyTrac analyzed (73 percent), buyers with debt still won't be able to pay the monthly mortgage. Even with a 3 percent downpayment, they can only afford the long-term costs of a home in nine Florida counties – Duval, Polk, Brevard, Pasco, Seminole, Escambia, Clay, Santa Rosa and Citrus.
Time spent saving for a downpayment
Another factor RealtyTrac considered is the length of time it would take the median buyer to save for a downpayment. The most expensive Florida market, Miami-Dade, isn't affordable with even a 20 percent downpayment, and it would take the average buyer 16.9 years to save that amount. For a 3 percent downpayment, it would take a Miami-Dade resident 2.5 years.
A downpayment takes less work in Pasco County, where it would take only seven years to save for 20 percent down and one year for 3 percent down. Pasco County is also affordable for first-time buyers under all downpayment and monthly payment assumptions.
RealtyTrac offered takeaways from its analysis:
1. Lower downpayments will help with one major hurdle to homeownership. Across all U.S. markets analyzed, it takes an average 12 ½ years to save a 20 percent downpayment at the current annual savings rate of 5.6 percent. It would take less than two years to save up for a 3 percent downpayment.
2. However, the good news applies mainly to borrowers without additional, debt such as student loans and car payments. Borrowers without additional debt can afford a home in 92 percent of all U.S. county housing markets; but borrowers with debt can afford a home in less than half (48 percent) of all county housing markets.
3. A larger downpayment helps. With a downpayment of 20 percent, more than three-fourths of county housing markets (78 percent) are affordable long-term, even if borrowers have an average student loan and car payment debt.
RealtyTrac says first-time buyers have one resource that's under-utilized: Downpayment assistance programs. There are more than 2,300 downpayment and closing cost programs available across the country, and an estimated 60 to 80 percent of homes in most areas qualify for one of the programs, according to data collected by Down Payment Resource.
"The narrative is that it's too hard to get a loan today, and when first-time buyers believe that, they won't even begin their search. That hurts the overall housing market," said Rob Chrane of Down Payment Resource. "Consumers for the most part have no idea that these programs exist, so they don't think to ask for them."