Saving for a down payment can often be challenging for first-time homebuyers, particularly in high-cost areas like Northern California, and it is likely an issue that most consumers carefully weigh before the housing hunt begins.
A recent report outlined just how much homebuyers would need to save for a 20 percent down payment in major metropolitan markets across the country. Not surprisingly, some of the largest down payments are required in markets throughout California.
A median-priced home in the U.S. is $192,500, which means buyers need $38,500 for a 20 percent down payment, according to the report by Zillow. But in most market areas in California, the down payment cost is much higher and the income burden is greater. In fact, metro areas in California were among the cities where homebuyers needed to save the highest percentage of income to cover a 20 percent down payment.
For homebuyers in areas like San Jose, San Francisco and Los Angeles, saving a year’s worth of income wouldn’t even cover a 20 percent down payment, according to the report. Buyers in those markets need to save at least 180 percent of the average income in those cities.
In San Jose, for example, the median 20 percent down payment translates to $192,320. That represents 182 percent of the average income and is roughly the same as the median price for a home in the U.S.
San Francisco-area buyers are faced with a median 20 percent down payment of $164,920, which is 180 percent of the average income.
The down payments are particularly steep when compared to the nation as a whole: the average American homebuyer sets aside two-thirds of his or her annual income to make that 20 percent down payment.
“It’s a big number,” Zillow Senior Economist Aaron Terrazas told CNN Money. “Very few are saving for a down payment in one year, it’s something they do over multiple years. And for renters who have been faced with rising rent and health care costs, it’s very difficult to put away any money at all.”
There are programs to assist first-time homebuyers, particularly those that offer smaller down payment requirements. While it is possible to put down less than 20 percent, that often translates to a higher interest rate and the extra cost of private mortgage insurance for homebuyers.
“Saving enough cash for a down payment is a major barrier to homeownership, especially in expensive markets, where a 20 percent down payment can cost nearly $200,000,” said Zillow Chief Marketing Officer Jeremy Wacksman. “While it’s possible to buy a house with a smaller down payment, 20 percent ensures the best rates. As important as it is to find a monthly payment you can afford, some buyers’ budgets will come down to the amount of cash they can bring to the table.”
To find out how much you can afford, contact me at 415-226-9591 or jill.halyk@cbnorcal.com.