2014′s Best and Worst Cities for First-Time Home Buyers

by Richie Bernardo

WH-Best-Home-Buyer-Badges-150x150Buying a home for the first time is an exciting and important milestone in most people’s lives. At least it was traditionally until the housing market experienced the most destructive upheaval in its history nearly a decade ago. Many Americans are still trying to recover from the collapse of the housing bubble that led to the Great Recession.

These days, home buyers are more stressed and skeptical as ever in the wake of the economic crisis, especially given the drastic variations in the pace of recovery across the United States. In 2013, the National Association of Realtors® reported that “Tightened credit standards for home buyers have suppressed the level of first-time buyers in the market.” Among primary-residence home buyers, 38 percent were first-time buyers that year, whereas the historical average is 40 percent.

With August being one of the top months for home sales, WalletHub compared the 300 largest U.S. cities to determine the ones that are most and least attractive to first-time home buyers. We did so using 17 key metrics, ranging from median house prices and real estate taxes to median home price appreciation and price-to-rent ratios. For those planning to relocate or purchase a new home in the near future, the findings of this study will help them navigate the real estate landscape.

Main Findings

 

Overall Rank

City

Affordability

Real Estate Market

Community Environment

1 Broken Arrow, OK 3 34 4
2 Allen, TX 17 30 15
3 Norman, OK 13 42 12
4 Denton, TX 93 17 6
5 Frisco, TX 27 21 34
6 Plano, TX 19 25 37
7 McKinney, TX 35 26 32
8 Centennial, CO 6 68 29
9 Thornton, CO 18 71 10
10 Richardson, TX 40 19 87
11 Carrollton, TX 25 32 71
12 Grand Prairie, TX 54 35 41
13 Colorado Springs, CO 12 80 30
14 El Paso, TX 265 23 8
15 Longmont, CO 52 85 9
16 Garland, TX 34 47 79
17 Gilbert town, AZ 2 141 21
18 Fort Collins, CO 95 67 2
19 Arvada, CO 35 81 26
20 Arlington, TX 46 33 97
21 Augusta, GA 32 53 94
22 Oklahoma City, OK 58 11 128
23 Tulsa, OK 85 16 102
24 Irving, TX 85 20 111
25 Overland Park, KS 24 86 53
26 Cary town, NC 1 84 136
27 Westminster, CO 8 109 45
28 Greeley, CO 105 45 69
29 Lexington, KY 14 59 135
30 Boise City, ID 44 146 20
31 Boca Raton, FL 55 137 1
32 Virginia Beach, VA 16 99 68
33 Chesapeake, VA 7 109 81
34 Aurora, CO 48 90 49
35 Fort Worth, TX 63 44 98
36 Austin, TX 128 2 73
37 Naperville, IL 53 88 46
38 Roswell, GA 51 79 77
39 Cedar Rapids, IA 20 65 147
40 Amarillo, TX 183 14 91
41 Montgomery, AL 9 12 268
42 Murfreesboro, TN 28 40 208
43 Henderson, NV 22 225 3
44 Sterling Heights, MI 38 100 54
45 Surprise, AZ 10 177 25
46 Louisville, KY 37 36 188
47 Raleigh, NC 30 52 160
48 Omaha, NE 97 46 123
49 Mesquite, TX 47 70 126
50 Columbus, OH 82 73 86
51 Chandler, AZ 5 182 67
52 Pembroke Pines, FL 43 203 7
53 Laredo, TX 256 13 78
54 Coral Springs, FL 155 94 11
55 Columbus, GA 49 39 228
56 Lincoln, NE 42 101 100
57 Fort Smith, AR 21 8 299
58 Port St. Lucie, FL 76 126 18
59 Tampa, FL 174 114 14
60 Sandy Springs, GA 154 62 80
61 Fort Wayne, IN 68 61 131
62 Huntsville, AL 4 77 222
63 Peoria, AZ 26 148 76
64 Pittsburgh, PA 133 7 212
65 Nashville, TN 92 27 198
66 Charleston, SC 71 74 151
67 Scottsdale, AZ 64 186 24
68 Davenport, IA 113 50 168
69 Yakima, WA 180 63 95
70 Jacksonville, FL 57 76 162
71 Miramar, FL 62 194 16
72 Hampton, VA 15 127 139
73 Joliet, IL 23 155 90
74 Palm Bay, FL 45 150 62
75 Plantation, FL 41 130 109
76 Newport News, VA 67 113 115
77 Springfield, IL 60 31 261
78 Bellevue, WA 105 154 19
79 Aurora, IL 33 152 108
80 Boulder, CO 138 129 22
81 Dallas, TX 275 3 149
82 San Antonio, TX 206 9 114
83 Charlotte, NC 89 22 233
T-84 Irvine, CA 126 145 38
T-84 North Las Vegas, NV 31 223 58
T-86 Davie town, FL 139 118 48
T-86 Spokane Valley, WA 107 138 56
88 Cape Coral, FL 110 156 40
89 Houston, TX 273 1 178
90 Mesa, AZ 73 174 82
91 Albuquerque, NM 70 120 129
92 Hillsboro, OR 84 161 60
93 St. Petersburg, FL 74 119 141
94 Carlsbad, CA 184 143 23
95 Peoria, IL 103 55 231
96 Denver, CO 130 134 89
97 Pueblo, CO 112 95 147
98 Thousand Oaks, CA 117 197 13
99 Lakeland, FL 100 104 146
100 Fayetteville, NC 39 54 282
101 Athens, GA 247 37 190
102 Memphis, TN 134 29 234
103 High Point, NC 60 57 265
104 Livonia, MI 11 153 203
105 Fremont, CA 114 211 42
106 Des Moines, IA 56 98 217
107 Lakewood, CO 75 116 164
108 Green Bay, WI 104 93 195
109 Mission Viejo, CA 111 195 44
110 Elgin, IL 72 191 92
111 Portsmouth, VA 79 125 157
112 Sunrise, FL 69 227 51
113 Vancouver, WA 185 136 57
114 New Orleans, LA 240 4 191
115 Reno, NV 159 181 43
116 Wichita, KS 147 64 182
117 Rochester, NY 186 10 270
118 Greensboro, NC 115 56 236
119 Murrieta, CA 167 214 5
120 Erie, PA 136 41 269
121 Winston-Salem, NC 93 60 253
122 Birmingham, AL 108 6 298
123 Savannah, GA 187 18 274
124 San Diego, CA 163 243 39
125 Clearwater, FL 175 105 139
126 Rancho Cucamonga, CA 96 209 105
127 Tucson, AZ 215 144 59
128 Visalia, CA 50 167 180
129 Temecula, CA 145 213 17
130 Corpus Christi, TX 201 43 158
131 Little Rock, AR 81 24 296
132 Simi Valley, CA 109 235 31
133 Roanoke, VA 170 66 229
134 Santa Clarita, CA 120 226 75
135 Elk Grove, CA 78 216 119
136 Spokane, WA 122 139 163
137 Bakersfield, CA 83 183 150
138 Kenosha, WI 88 160 161
139 Tuscaloosa, AL 214 38 259
140 Dearborn, MI 87 112 232
141 Sunnyvale, CA 148 206 74
142 Chula Vista, CA 200 239 28
143 Durham, NC 121 72 248
144 Oceanside, CA 177 178 88
145 Philadelphia, PA 197 58 219
146 Yuma, AZ 80 158 189
147 Roseville, CA 135 190 112
148 Phoenix, AZ 115 202 134
149 Madison, WI 140 117 194
150 Cincinnati, OH 269 28 225
151 Beaverton, OR 230 192 34
152 Shreveport, LA 90 14 279
153 Vacaville, CA 131 251 52
154 Atlanta, GA 232 82 193
155 Las Vegas, NV 64 242 152
156 North Charleston, SC 102 49 294
157 Mobile, AL 29 97 283
158 Huntington Beach, CA 125 217 123
159 Anchorage, AK 66 219 181
160 Corona, CA 146 246 54
161 Alexandria, VA 144 169 136
162 Glendale, AZ 101 172 197
163 Baton Rouge, LA 77 75 256
164 Orange, CA 149 247 71
165 Warren, MI 98 124 240
166 Seattle, WA 156 231 116
167 Norfolk, VA 157 147 185
168 Orlando, FL 118 185 179
169 Allentown, PA 160 106 235
170 Grand Rapids, MI 123 78 260
171 Tallahassee, FL 192 103 209
172 Renton, WA 165 222 109
173 Toledo, OH 129 109 250
174 Jackson, MS 268 5 267
175 Torrance, CA 172 266 46
176 El Cajon, CA 282 168 32
177 Richmond, VA 255 69 220
178 Baltimore, MD 259 48 244
179 Hialeah, FL 264 241 36
180 Cleveland, OH 153 123 224
181 Victorville, CA 99 227 174
182 Ann Arbor, MI 208 132 192
183 Waukegan, IL 141 163 204
184 Glendale, CA 250 259 27
185 Oxnard, CA 162 274 50
186 San Jose, CA 208 248 118
187 Miami Gardens, FL 198 199 142
188 Santa Clara, CA 168 208 154
189 Kansas City, MO 219 115 207
190 Chicago, IL 278 107 144
191 Riverside, CA 143 282 93
192 West Covina, CA 180 256 101
193 Springfield, MO 195 91 239
194 Clovis, CA 91 240 199
195 St. Louis, MO 217 82 252
196 Gainesville, FL 258 128 172
197 Stamford, CT 245 121 199
198 Fontana, CA 157 263 106
199 Tempe, AZ 141 204 201
200 Burbank, CA 222 257 61
201 St. Paul, MN 179 175 205
202 Akron, OH 127 108 276
203 Pasadena, CA 203 262 84
204 Moreno Valley, CA 169 252 121
205 Los Angeles, CA 271 253 66
206 Lancaster, CA 221 238 104
207 Palmdale, CA 233 244 96
208 Minneapolis, MN 216 170 196
209 Portland, OR 250 171 165
210 Knoxville, TN 190 92 277
211 Milwaukee, WI 228 102 238
212 Kent, WA 189 229 156
213 Tacoma, WA 124 236 214
214 Honolulu, HI 227 218 132
215 Chico, CA 261 197 107
216 Vista, CA 291 192 65
217 Hollywood, FL 244 180 176
218 San Mateo, CA 191 265 125
219 Indianapolis, IN 193 149 223
220 Buffalo, NY 151 51 288
221 Manchester, NH 150 166 247
222 Garden Grove, CA 212 289 70
223 West Palm Beach, FL 249 122 226
224 Salt Lake City, UT 58 281 218
225 Quincy, MA 266 162 168
T-226 Escondido, CA 284 224 63
T-226 Federal Way, WA 235 165 206
228 Anaheim, CA 234 284 103
229 Santa Rosa, CA 218 269 99
230 Lowell, MA 176 214 216
231 Ontario, CA 137 283 143
232 San Francisco, CA 211 232 186
T-233 Boston, MA 263 159 202
T-233 Fresno, CA 204 200 215
235 Waterbury, CT 178 176 243
236 Fullerton, CA 210 271 120
237 Salem, OR 226 151 230
238 Rockford, IL 119 142 285
239 Wilmington, NC 198 87 295
240 Santa Ana, CA 238 296 83
241 Costa Mesa, CA 239 234 154
242 Sacramento, CA 164 287 172
243 Long Beach, CA 229 292 117
244 San Buenaventura (Ventura), CA 194 268 138
245 Fort Lauderdale, FL 253 173 210
246 Fairfield, CA 225 249 166
247 Dayton, OH 132 140 291
248 Pompano Beach, FL 205 212 221
249 Cambridge, MA 180 205 245
250 Santa Barbara, CA 230 230 170
251 Washington, DC 173 179 266
252 Detroit, MI 170 189 263
253 Albany, NY 260 89 284
254 Concord, CA 223 278 130
255 Daly City, CA 220 291 113
256 Norwalk, CA 207 297 85
257 Miami, FL 300 164 145
258 Carson, CA 160 290 183
259 Santa Monica, CA 213 275 187
260 Gresham, OR 237 187 258
261 Everett, WA 266 250 183
262 New York, NY 274 267 171
263 Stockton, CA 166 258 255
264 Eugene, OR 270 157 253
265 Worcester, MA 241 196 257
266 Downey, CA 254 293 122
267 Santa Maria, CA 201 271 213
268 Flint, MI 152 133 300
269 Springfield, MA 236 131 290
270 El Monte, CA 295 277 63
271 Modesto, CA 188 273 242
272 Westminster, CA 280 270 158
273 Brockton, MA 243 209 271
274 Hayward, CA 257 284 167
275 Hartford, CT 287 96 286
276 Antioch, CA 224 264 241
277 Rialto, CA 262 279 153
278 Pomona, CA 279 287 175
279 Lansing, MI 252 188 293
280 San Bernardino, CA 248 280 227
281 Jersey City, NJ 292 261 211
282 Berkeley, CA 272 254 249
283 Vallejo, CA 195 286 264
284 Bridgeport, CT 242 221 287
285 Lynn, MA 285 200 272
286 Providence, RI 246 245 281
287 Miami Beach, FL 297 207 251
288 South Gate, CA 293 299 126
289 Fall River, MA 280 237 275
290 Inglewood, CA 286 300 133
291 Yonkers, NY 296 255 237
292 Elizabeth, NJ 283 183 292
293 New Haven, CT 294 135 297
294 Compton, CA 289 298 177
295 Oakland, CA 276 294 246
296 New Bedford, MA 277 260 278
297 Paterson, NJ 299 232 273
298 Salinas, CA 290 276 262
299 Newark, NJ 298 220 289
300 Richmond, CA 288 295 280

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Ask the Experts

Purchasing real estate for the first time can be nerve-racking. It’s a decision that shouldn’t be taken lightly or made without prior research or the help of a professional. To ease the process, we’ve asked a panel of experts to provide insightful advice for inexperienced buyers. Click on the experts’ profiles below to read their bios and responses to the following key questions:

  1. What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?
  2. How do you know that you are financially ready to buy your first home?
  3. What do you recommend as the minimum down payment for a first-time home buyer?
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Dean Gatzlaff

Mark C. Bane Professor and Director of the Center for Real Estate Education & Research, College of Business, Florida State University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Access to employment, quality schools, community services (e.g., health, retail, restaurant religious, entertainment, and social services); crime patterns; and growth patterns. The importance of each of these are quite individualized. I’m not sure there is one factor that is most important.

How do you know that you are financially ready to buy your first home?

With the exception of the piti/gross income ratio required, I think the metrics considered by the lending industry are about right. First time home buyers should have established a record of consistent earnings and being able to handle credit. New buyers should have maybe two years of earnings at a level sufficient to handle the piti expenses. I’d recommend that the piti be less than 20% of gross earnings (much less than what the lending industry allows). With a down payment this translates to a home value of about 3.5 times gross earnings in today’s market. Of course, there may be exceptions to this for very high cost cities such (e.g., San Francisco). First time buyers should have a stable job outlook, no outstanding credit card debt, a track record of paying off their student and car loans, and have developed some type of savings or investment account.

Remaining mobile and being able to respond to job promotions and opportunities is important and should be considered. Because the transaction costs involved in a home purchase are substantial, the buyers’ expected holding period should be at least four years.

What do you recommend as the minimum down payment for a first-time home buyer?

To avoid PMI, a down payment of 20% would be good, but that’s very difficult for many first-time buyers to achieve. The size of the down payment is correlated with the likelihood default (i.e., the lower the down payment, the greater the likelihood of default). So, for the buyer, the down payment may be viewed as an indicator of their ability to save and handle credit. Because of this, being able to provide a minimum down payment of at least 10% of price would be a reasonable hurdle.
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Brent Smith

Associate Professor of Finance, Virginia Commonwealth University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Beyond the obvious, (e.g. access to work and desired amenities) the next thing would be to assess their perception of the marketability of the neighborhood. The average tenure of housing today is roughly 7 years. That means, in short, that just about the time you get settled into your house you are going to be looking to move. I would encourage buyers to look for a stable neighborhood with access to employment centers and good schools (even with the aging population schools remain a strong indicator of value) and select a house from that neighborhood that is in balance with the surrounding houses (i.e. shy away from the most and least expensive houses).

How do you know that you are financially ready to buy your first home?

You are ready when paying rent allows you to continue to save a significant portion of your income. Many people compare their ability to pay for a house as a direct relationship to their ability to pay rent. I have heard at least a hundred times “My rent is $1,500 and the mortgage on the house I am looking at is only $1,450.” That relatively close relationship is not by chance, it is often dictated by the market. More importantly, the mortgage quote does not include property taxes or insurance, both of which can result in a significant increase in the monthly outlay. Further, people often forget, or neglect to budget in the maintenance and upkeep expenses they avoid when renting that are now essential to maintain the house. Ongoing maintenance and repairs become especially important if you buy into the notion that the buyer is going to be thinking about selling in seven years.

What do you recommend as the minimum down payment for a first-time home buyer?

If you purchase with an FHA loan as a first time buyer you can obtain a loan with as little as 3.5% down, and in many instances FHA will finance closing costs as well. That low entry hurdle comes at a cost. FHA loans are insured against default. The insurance covers the investor in the event the borrower defaults, and the borrower is responsible for paying the premiums for this insurance. This premium is added to the cost of the mortgage. If you have a crystal ball and can see that you are buying a house in 2000 and selling in 2007 right before the financial crisis then you can buy with little down and watch the value increase such that when you sell in seven years you will have a windfall after you pay off the mortgage.

The problem with that logic is that we do not have a crystal ball and cannot see into the future and purchasing a house with a low down payment puts you the buyer in a constrained position if for some reason (think job transfer, increase in family size, loss of income, etc.) you are forced to sell the house and the market has fallen. You may be strapped because you owe more than the house is worth. To help avoid this loan to value trap, to avoid paying mortgage insurance, and also to minimize the interest cost of the loan (mortgages with a loan to value in excess of 80% will have higher interest costs) I always encourage first time homebuyers to work toward 20% down as an unwavering goal.
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Mark Stapp

Fred E. Taylor Professor in Real Estate, W. P. Carey School of Business, Arizona State University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Location! You can make some modifications to the features of a house to match your desires and lifestyle and you can remodel but you can’t change the area. Know what is important to you from a lifestyle perspective and be realistic about what role the house will play in your life - is it a starter and you intend to move in 2 to 3 years; do you intend to have kids and raise them in the house? Remember that neighborhoods change - they have life cycles and know if the neighborhood you're planning to move to is emerging or declining. Try and buy the cheapest house in the most expensive neighborhood, not the other way around and look for emerging or very stable neighborhoods.

How do you know that you are financially ready to buy your first home?

Affordability is not what the bank says and it’s more than the mortgage payment, its maintenance and upkeep too. Know what your ability to pay for things is and stick to the old rules-of-thumb about 28% of your income at most. Keep in mind other costs and debts as well as lifestyle costs. If you have student debt, it might make getting loan big enough for the house you want tough. Remember it’s easier to get the loan (although it has not been lately) but the banks will not be so willing to help if you get into financial trouble after you have the loan - they are not your friends and likely sold the loan anyway after you closed.

What do you recommend as the minimum down payment for a first-time home buyer?

As much as you can but do not put all of your cash into the down payment only to be left with no cushion. I’d rather see lesser down and maintain a cash reserve.
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Kelley Pace

LREC Endowed Chair of Real Estate, EJ Ourso College of Business, Louisiana State University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

They need to find a neighborhood that they like and one that future buyers will like as well since most first time homes will not be permanent ones.

How do you know that you are financially ready to buy your first home?

If you can qualify for a Qualified Residential Mortgage, you probably have the assets and income to own a home without a heroic strain on the finances. However, are you really ready to stay in a house for some time?If not, you should consider owning later rather than earlier.

What do you recommend as the minimum down payment for a first-time home buyer?

If there is some special program that allows for a lower down payment that may be a good opportunity. However, rates usually fall with a greater down payment and this provides incentive to put down more. You should be able to put down 10%, even if you do not have to.
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Vivek Sah

Assistant Professor in Real Estate, School of Business Administration, University of San Diego

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

There are numerous generic factors but some are subjective to choice of individuals/households. In general, neighborhood choice should be based on quality of living after work (after controlling for price). A neighborhood should provide a sense of livingness, a place where one can relax after work. Basic amenities are essential such as green space (both parks and walkable space), neighborhood shopping centers and recreational opportunities (clubs for children and adults). For households with children, quality of schools is the single most important thing that should drive the decision. This is critical as children spend 8-10 hours at school and that impacts their learning and direction of growth, both personal and academic in the long-run. Then there are factors such as crime rate and demographic composition that should be looked at (almost all of such data is publicly available nowadays for decision making by first-time homebuyers). People tend to prefer living with similar beings around them. For example an empty nester family may not enjoy living in a neighborhood with families with kids/children. Similarly a family with kids will enjoy a neighborhood with kids around, for having company with children of other families. Often people look at proximity to work, but I think that should be lower in the decision making parameters than some other things such as mentioned above.

How do you know that you are financially ready to buy your first home?

This is tricky because home-ownership is a big achievement/milestone and dream for lot of people. Hence, people are tempted to buy if they can manage to borrow money from lenders, up to the full amount of value of their prospective home. However, as a financially responsible citizen, one has to ensure that home-ownership in short-run does not come at the cost of default in the long-run, as we have learnt from the most recent housing crisis. What this means is that prospective home owners should ensure that they have saved enough amount of money to make 15%-20% of down payment irrespective of lenient lender requirements in terms of loan-to-value. This will help when housing prices go south by providing some cushion for owners, who would otherwise owe more than what their house is worth. A large proportion of defaults in the recent housing crisis were very high LTV loans (controlling for economic hardships due to job loss or other factors). The incentive for home owners to default when they have very small amount to nothing down, is very high. This will be easily avoided if they have significant skin in the game. Besides this, a stable and consistent job providing regular source of income is important to be able to service the monthly mortgage payment. Finally once has to also ensure that as home owners, there are some extra costs besides the mortgage payment that one has to bear, which as a renter you may not be aware of. All these costs have to be added to the mortgage payment to ensure that the overall cost on a monthly basis is also affordable. Three of these major costs are property tax (+any added special assessment fees), home insurance and Home Owners Association fees (HOA). In some cases, these costs may add up to 50% of the mortgage payment, which is quite substantial.

What do you recommend as the minimum down payment for a first-time home buyer?

As mentioned above, regardless of the policies of banks (which nowadays want higher down payments although it may be a short-term phenomenon), responsible first-time home buyer should put down at least 15% to 20% of the home value as equity. This ensures lower propensity to default and incentivizes the home-owner to stay put in the house. A lot of home owners in the recent housing crisis chose to strategically default (no financial hardship at all and hence called a strategic default) as they owed more to the bank than the value of the house with no money/equity in the house (>=100% LTV). Having said that, around 20% to 25% is the maximum I would recommend to pay down as you want to leverage the favorable lending environment in the housing sector.
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Xun Bian

Assistant Professor of Finance & Real Estate, Longwood University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

When searching for their dream houses, first-time home buyers are easily attracted by physical characteristics of a property but, unfortunately, often ignore or underestimate the importance of choosing the right neighborhood. While you can always alter the house’s physical structure to meet your needs, you cannot change your neighborhood unless you move. Several aspects are important to choosing the right neighborhood. First, the neighborhood needs to be conveniently located. In particular, it should be reasonably close to where you work. If you do not have a work-from-home job and need to commute on a daily basis, then commuting time should certainly be an important consideration. Long commutes not only cost more and reduce time to be with family, but also diminish labor productivity. Second, school district matters. It is not only valuable to those who have or will soon have school-age children, a good school district has been proven to increase property price and sustain high property value. Finally, one should always spend some time to learn about how safe the neighborhood is. What are the local crime rate statistics? Are there any registered sex offenders living nearby? High crime rate does not only jeopardize the safety of you and your family, it also significantly reduces property value. In addition, it takes a significantly longer time to sell a property in a neighborhood that has high crime risk.

How do you know that you are financially ready to buy your first home?

First, you need to be able to bear the financial costs associated with home ownership. Not only you have a mortgage to pay every month, there are also property tax and homeowner insurance. U.S. Department of Housing and Urban Development (HUD) states that “families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care.” This is what typically is referred to as the 30 percent rule, and can be used as a guidance to determine whether or not you are financially ready to be a homeowner. However, keep in mind that the 30 percent rule does not take into consideration other existing financial obligations that you have, such as student loans and auto loans. Furthermore, new homeowners are typically facing large expenditures towards purchasing appliances and furniture. If you have a lot of other payments to make, it is a good idea to be conservative and accumulate a larger down payment before you buy.

Second, home ownership also imposes an opportunity cost that is often ignored. This is what is referred to as the Oswald hypothesis. Homeowners are much less mobile than renters due to costs associated with the buying and selling of their home, and their reduced flexibility in the labor market can result in inferior labor market outcomes (e.g. Higher unemployment rate, longer unemployment duration). There is abundant empirical evidence suggesting that home ownership is associated with reduced mobility. First-time home owners may want to consider how the reduced mobility is going to limit their future earning potential. If you are financially established and your career is stable, then home ownership is probably right for you. Otherwise, renting may be a better option.

What do you recommend as the minimum down payment for a first-time home buyer?

It is very hard to give a specific number that suits everybody. The answer to this question really depends on each individual’s circumstance. If you have investment opportunities that generate higher rates of return then rate you are paying on your mortgage, then you should take advantage of those opportunities and put down as little as possible. If you have other debts that carry higher interest rates than your mortgage, you should substitute them with mortgage debt. After all, housing financing is subsidized by U.S. Federal government through federal tax deduction and is less expensive than many other debts. Do keep in mind that, your cost of borrowing does increase as you borrow more. If you go beyond the conventional conforming loan limits, your mortgage is classified as a jumbo loan, which requires paying a higher interest rate. Furthermore, if your loan-to-value (LTV) ratio exceeds 80 percent, you are required to pay private mortgage insurance (PMI). The optimal down payment balances the benefit and the cost.
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Shawn D. Howton

Director of the Daniel M. DiLella Center for Real Estate and Associate Professor of Finance, Villanova School of Business

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Price, schools, amenities, community. A home purchase should be viewed more as a place to live than an investment but these will impact the ability to sell in the future. The buyer also needs to determine if this is their long term home or a starter home. The old advice to buy the worst house in the best neighborhood is probably still good advice. These places maintain value and liquidity the best.

How do you know that you are financially ready to buy your first home?

Carefully budget and determine what the amount you can afford. If you are comfortable enough in your career/life in making that payment for 15 or 30 years you are probably ready. I think buyers should be careful not to make themselves "house poor". If you can't afford the house you really want, wait and keep saving.

What do you recommend as the minimum down payment for a first-time home buyer?

I'm very conservative so the 20% rule makes sense to me. Not every home buyer can afford this but it seems like a good rule of thumb. There are first time buyer programs that allow much lower down payments. If it is a long term purchase and the buyers life and career are in a stable enough place these programs could be O.K. Buyers don't want to find themselves upside down like so many did after the financial crisis and in a position they are forced to sell with negative equity or default. That can have detrimental financial consequences that a very hard to recover from.
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John Harding

Professor of Finance & Real Estate, School of Business, University of Connecticut

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

First, the buyers should make sure the neighborhood has the amenities they foresee needing. For example, families with school age children or who anticipate school age children should consider the schools—convenience and proximity. Other needed amenities will depend on the family’s needs. For example, transportation, shopping, recreation etc. For most homebuyers neighborhood safety is an important issue and can be reviewed with crime statistics.

Second, I would suggest looking at recent price trends using something like Zillow. Price trends—especially if they deviate from the overall MSA and national price trends can show a neighborhood that is on the rise or declining. Such trends could be due to local problems or simply reflect the fact that the housing stock in the neighborhood is declining or changing for the better.

I would also look at school enrollments and new building in the area. If a neighborhood is in demand, people will be moving in triggering a rise in school enrollment and building.

Finally, I would look at the general housing stock. Ideally, your house will not deviate too much from the neighborhood norms. If you are buying the only old house in a neighborhood, it will probably fall out of favor in the future.

How do you know that you are financially ready to buy your first home?

I would recommend a “residual income” analysis. The household should first analyze their spending patterns for non-house related items. The household needs to make sure that after they pay their housing expenses (principal, interest, taxes, insurance and maintenance) that they will have enough left over to cover expenses and still have some cushion. No simple ratio of payment to income will really do a good job.

What do you recommend as the minimum down payment for a first-time home buyer?

I think 10% down is a reasonable amount.
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Dennis Torres

Director of Real Estate, Real Estate Operations, Graziadio School of Business and Management, Pepperdine University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Quality of schools if they have children. Commuting distances to work, shopping, medical facilities, church. Crime statistics. Stability of neighborhood sales/price/turnover. How well homes are maintained. Affordability – buy below your means.

How do you know that you are financially ready to buy your first home?

The old model was spending no more than 25% of your disposable income for monthly housing costs; over the years this has moved up to more than 50%. Be conservative; consider if your income suddenly decreased, could you still afford to live/pay your mortgage/taxes/up keep. Remember the cost of the mortgage is only one part of home ownership; besides principal, interest, taxes and insurance there are maintenance requirements and you still have food, medical bills, vacations, eating out, etc. It is okay to sacrifice one thing to get another, as long as you are realistic in your commitment to sacrifice, for how long you are willing to sacrifice and whether you can afford to sacrifice.

What do you recommend as the minimum down payment for a first-time home buyer?

From strictly an investment standpoint the minimum is best – it gives you the maximum leverage and preserves capital for needs and emergencies. From a pragmatic standpoint the more you can afford to put down the better. Smaller debt is better than greater debt and no debt is best of all. Consider too that a small down payment may mean a higher interest rate on the remaining debt.
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David Sinow

Adjunct Professor of Finance, University of Illinois at Urbana-Champaign

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Quality of schools if they have children. Commuting distances to work, shopping, medical facilities. First of all, do not fall in love with your first home. It won't be your dream home, and it is very unlikely that it will be your last home. You should be looking for a neighborhood with appreciation potential. So choose a neighborhood with a great elementary school that the neighborhood children are eligible to attend - even if you don't have children. Additionally, it has been my experience that neighborhoods with churches and synagogues tend to appreciate more quickly than neighborhoods devoid of religious institutions. Parks and dedicated bicycle paths in the neighborhood are also a huge plus. A neighborhood predominantly consisting of single family homes rather than condos or townhouses is likely to appreciate more quickly. Next, do not purchase a home in an area contiguous to undeveloped ground that could be zoned for industrial, heavy commercial, or large multi-family developments - that's an appreciation killer. Also, remember that single family homes appreciate more rapidly than condos or townhouses. So buy in the best neighborhood you can afford and purchase a single family home as opposed to a condo or townhouse - even if the single family home has less square footage. Finally, look for a neighborhood where houses, once they are listed for sale, sell quickly. Your real estate agent can provide you with the amount time a home in your chosen neighborhood remains on the market prior to sale. Buy in a neighborhood where houses sell more quickly than the average time on the market for all surrounding neighborhoods.

How do you know that you are financially ready to buy your first home?

You are financially ready when: 1) You have a bona fide credit score of 740 or higher; 2) you have a full-time job with benefits; 3) Most importantly, the total monthly cost of your likely mortgage payment, real estate taxes, and home insurance does not exceed 28% of your gross monthly income & the total monthly cost of your mortgage, real estate taxes, home insurance, student loans, car payment, and credit cards does not exceed 36% of your gross monthly income. These rules are fondly referred to as the old 28/36 Fannie Mae Guidelines. These guidelines were used in the "olden days" before it became fashionable to rely almost solely on credit scores and questionable appraisals to determine mortgage eligibility - which exacerbated the housing crisis and the "Great Recession."

What do you recommend as the minimum down payment for a first-time home buyer?

20% is best - 15% may be acceptable. At 10% or less, you are required to insure your mortgage against your default by purchasing special government insurance, which is added to your monthly payment and it is expensive!!! So don't be pressured into buying a home until you have an adequate down payment - there will always be homes that will meet your criteria - you just might have to exercise a bit more patience.
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John H. Vogel Jr.

Adjunct Professor of Business Administration, Tuck School of Business at Dartmouth

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

For first time homebuyers, choosing a neighborhood involves a series of tradeoffs. Do you want to be closer to work or have more recreational amenities? Do you want restaurants you can walk to or a quieter street? And there are important considerations about safety and schools. As a first time homebuyer one is unlikely to get everything so each purchaser or family needs to set priorities. However, one important consideration is whether you feel the neighborhood is getting better or getting worse. If there are a lot of for sale signs in the neighborhood that is usually not a good sign.

What do you recommend as the minimum down payment for a first-time home buyer?

Ideally, banks are looking for a 20% down payment and will reward you with better terms including a lower interest rate if you can save up that amount. However, most first time home buyers cannot save that much which is why there has been an upsurge in Veteran’s Administration (VA) mortgages which do not require any down payment and Federal Housing Administration (FHA) mortgages which only require a 3.5% down payment as long as the borrower has a credit score over 580. One thing to keep in mind as a first time home buyer is that you will also need money for closing costs and for home improvements when you move in, so putting all of your savings into the down payment is not a good idea.
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Randall Guttery

Clinical Professor of Finance and Director of the MS Real Estate Program, Naveen Jindal School of Management, The University of Texas at Dallas

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Briefly, choosing a neighborhood location is vitally important. School district, distance from work and church and shopping, safety and resale value must be considered.

How do you know that you are financially ready to buy your first home?

You will know you are financially ready when you have a down payment and closing costs saved AND you can afford the debt service monthly payment, property taxes, insurance premiums, maintenance, repairs and capital improvements. Rent until this is the case.

What do you recommend as the minimum down payment for a first-time home buyer?

Ideally, a 20% down payment is best because you avoid costly PMI on a conventional loan, or reduce the cost of MIP on a FHA insured loan or the funding fee on a VA guaranteed loan. The more a borrower has of his own money in the deal, the less likely he is to default.
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John Adams

Assistant Professor of Finance, University of Texas at Arlington

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

The neighborhood should be 'better' than their current neighborhood. Better could mean better schools, location, safety, aesthetics, or anything else that is important to the buyers. Take some time to walk the neighborhood after work or on the weekends to get a feel for what life is like there. Remember, you can remodel the kitchen but you can't really upgrade the neighborhood or neighbors.

How do you know that you are financially ready to buy your first home?

First, determine if buying makes financial sense. There are a number of rent versus buy calculators available online. Second, the total house payment including taxes, insurance, and maintenance allowance (figure $100-$200 per month for an average priced home) should not exceed 20% of the gross monthly income of the highest earning spouse. If one of the spouses loses their job, which happens far too often in today's economy, the house payment won't be too big of a burden. Mortgage brokers will consider income from both spouses but their interest lies in getting first time buyers a loan, but buyers have to live with the loan. For single folks, question if buying really makes sense, one of the advantages of being single is the flexibility to pursue jobs in other locales. Owning a home reduces that flexibility. Finally, real estate transaction costs are high so don't buy unless you have the financial and career stability that will allow you to stay in the home for a few years.

What do you recommend as the minimum down payment for a first-time home buyer?

The least amount necessary to get a good interest rate, even if it means paying private mortgage insurance for a couple of years. The recent downturn in home values isn't likely to repeat itself anytime soon and owning a home is a great way to lock in housing costs for the long term. Remember, the primary purpose of the down payment is to protect the lender in case of default.
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Jacques Gordon

Adjunct Lecturer of Real Estate, Kellogg School of Management, Northwestern University

What are the most important aspects that first-time home buyers should consider when choosing a neighborhood in which to make their purchase?

Financial stability of local government, quality of schools, stability of local population, personal knowledge of the neighborhood.

How do you know that you are financially ready to buy your first home?

If you can get pre-qualitfied as an eligible borrower by a bank at the interest rate that they set aside for their best customers.

What do you recommend as the minimum down payment for a first-time home buyer?

Typically 20% or more. Leaving the buyer with mortgage payments at or less than 30% of annual gross income.

Methodology

To determine which housing markets most favor first-time home buyers, WalletHub assessed the affordability of homes as well as the conditions of the real estate market and community environment in the 300 largest U.S. cities (for the ones with no data limitations). We did so using 17 key metrics, ranging from median house prices and real estate taxes to median home price appreciation and price-to-rent ratios.

For this particular study, we chose each city according to the size of its population. Population, in this case, does not account for residents in the surrounding metropolitan areas. The metrics and corresponding weights we used are shown below. The three categories under which the metrics are listed were used for organizational purposes only and did not factor in to our overall rankings.

Affordability

  • Median Household Annual Income adjusted for Cost of Living: 1
  • Housing Affordability (Median Household Annual Income per Median House Price): 2
  • Consumer Non-Housing Debt per Median Household Annual Income: 0.5
  • Real Estate Tax Rate: 1

Real Estate Market

  • Median Home Value: 1
  • Price to Rent Ratio: 1
  • Sale-to-List Price Ratio: 0.25
  • Median Home Price Appreciation: 2
  • Average Home Square Feet: 1

Community Environment

  • Violent Crime Rate per Capita: 1
  • Property Crime Rate per Capita: 1
  • Best & Worst Cities for Recreation Ranking: 0.5
  • Most & Least Recession-Recovered Cities Ranking: 0.5
  • Cities with the Best & Worst Weather Ranking: 1
  • Total Home Energy Cost: 1
  • States with Best & Worst ROI for Taxpayers Ranking: 1
  • Best and Worst U.S. Cities to Find a Job Ranking: 1

 
Sources: Data used to create these rankings is courtesy of the U.S. Census Bureau, the Council for Community and Economic Research, Zillow, the Federal Bureau of Investigation, Experian and WalletHub research.

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Richie Bernardo is a financial writer at WalletHub. He graduated with a Bachelor of Journalism and a minor in business from the University of Missouri-Columbia. Previously, Richie was a journalism…
371 Wallet Points
Richmond dead last for first time home buyers? I find this difficult to believe considering the factors not included in the analysis. Richmond has proximity to one of the finest regional park systems in the world, nearby University of California at Berkeley now has a presence in Richmond with the Richmond Bay Campus, commercial enterprises are taking a renewed interest in locating in Richmond, the Bay Area Rapid Transit system has a terminus in Richmond, and Richmond's reputation
for crime has lagged behind a dramatic decrease over the last few years in personal and property crime.
Sep 2, 2014  •  Reply  •  Flag
I do not agree with the methodology at all. Excluding nearby populations, incomes, rapid transit is dumb.
Aug 20, 2014  •  Reply  •  Flag