Debt — like student loans and car payments — can create the biggest barrier to home ownership, more so than saving for a down payment, according to a new analysis by RealtyTrac.
RealtyTrac analyzed affordability in 500 counties and found that one of the biggest obstacles potential buyers face is any nonmortgage debt they may carry as they try to qualify for a loan.
Such extra debt loads are making housing payments less affordable in many markets across the country. For example, the addition of debts such as student loans and car payments made monthly house payments affordable in less than half — 48 percent — of U.S. housing markets, assuming a 3 percent down payment, according to RealtyTrac’s analysis. Borrowers with extra debt who can come up with a larger down payment may find affordability easier to achieve, however. With a down payment of 20 percent, for example, about 78 percent of the country’s housing markets become affordable, even when carrying student loan debt and a car payment.
For borrowers without any additional debt, they’ll find affordability high. Their monthly house payments were affordable in more than 90 percent of U.S. housing markets, even with just a 3 percent down payment, according to RealtyTrac’s analysis.
Still, saving for a down payment can be a big obstacle to home ownership too. It takes an average of 12.5 years to save for a 20 percent down payment on a median-priced home at the current annual savings rate of 5.6 percent, according to the St. Louis Federal Reserve. It takes an average of less than two years to save up for a 3 percent down payment.
But researchers note there are down payment assistance programs available. In fact, there are more than 2,300 down payment and closing costs programs nationwide, offering assistance amounts, on average, of $19,720, according to data collected by the 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,” says 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. Whatever your situation is, whatever you have for a down payment, you could be in a much better situation if you find out you are eligible for one of these programs.”