4 Questions to Ask Before Buying a Rental Property

This quick review can help you figure out if you've got what it takes and, if not, how you can get it.

If you’re obsessed with HGTV, remodeling and regularly use phrases like “reclaimed wood” and “farmhouse feel,” you’ve probably kicked around the idea of buying investment property. The popular TV niche has given birth to a group of people who are motivated to improve their incomes with do-it-yourself projects and tenants in tow.

While it may seem simple and fulfilling on the small screen, buying rental property carries the same risks as purchasing your primary home. The following questions are some you’ll want to answer as you consider possible investment strategies.

1. What Are Your Financial Goals?

Are you hoping to earn extra monthly income, or do you view rental property as an attractive long-term investment? Being clear about your expectations is crucial to nailing down whether investment property is a wise choice. According to Mark Ferguson, Realtor, real estate investor and voice of InvestFourMore.com, many buyers fail to think beyond square footage.

“The biggest mistakes I see are investing in a property that loses money while hoping for appreciation, paying all cash for properties when you don’t have to and trying to manage (properties) yourself without skills or time,” Ferguson said.

It’s a good idea to make a list of short- and long-term goals as well as deal-breakers for any investment you choose. Creating rules will help you stay focused.

2. Can You Afford Extra Expenses?

Maintaining rental property takes work and extra cash, and while it’s tempting to focus on the best-case scenario, you shouldn’t discount the hefty expense of rental property taxes, association dues, management, maintenance and repairs. It’s possible to cut expenses by taking on a few handy projects yourself, but it won’t eclipse the costs entirely.

It’s wise to build a reserve fund in anticipation of your property’s needs according to Scott Trench, real estate broker and vice president of operations at BiggerPockets.com. “If you have $10,000, or even $20,000-plus in a bank account set aside for reserves, you can buy your way out of many problems associated with small rental properties,” Trench said.

With that in mind, you may want to consider building an emergency fund for your business investments in addition to your personal savings account. Separating your expenses is necessary for tax purposes, and you’ll need two accounts to maintain personal and professional independence.

3. Which Real Estate Market Is Right For You?

Although analysts predict a healthy rental market in 2017, value is still subjective, and you might consider looking outside your ZIP code to see if there are better buying options elsewhere.

“Certain metropolitan areas are most attractive to the country’s largest population groups—millennials and boomers — and are growing much faster than others,” said Alex Cohen, commercial specialist for CORE, a real estate brokerage firm based in New York City.

“Some of these markets have relatively low land and housing construction costs like Dallas and Houston. But other markets, particularly on the coasts, have much higher land and construction costs, which means less housing will be built in these metros,” Cohen said. “The flip side of this phenomenon is that in these housing-supply-constrained markets, values of homes and rents are likely to rise faster than in the rest of the country.”

While some experts suggest buying in up-and-coming locations, others swear that a good deal can lead to better returns and the ability to expand. “My 16 rentals have increased my net worth by over $1 million dollars through appreciation and buying cheap to begin with,” Ferguson said.

It’s a good idea to research all your options — from foreclosures to new construction — to determine which property could produce the best income and overall bang for your buck. Don’t be afraid to venture beyond your own backyard.

4. Are Your Finances & Credit In Good Shape?

If you are a homeowner, you may feel like a pro when it comes to applying for a mortgage, closing the deal and upgrading your property. While you may have some valuable experience, buying investment property comes with its own set of rules. Unlike purchasing your primary home, most rental mortgages require a larger down payment with a few exceptions.

“The way to minimize the additional costs — particularly higher down payment requirements of an investment property — is to take out an FHA loan, for which a down payment of as low as 3.5% of the purchase price may be possible,” Cohen said. “FHA loans are available to investors in properties with up to four units, as long as the borrower’s primary residence will be one of the apartment units.”

Not familiar with the Federal Housing Administration? You can find our full explainer on FHA loans here.

If you don’t plan to live in the rental property, you’ll need to secure a standard mortgage loan with a host of federal requirements that include financial reserves based on property value and the number of rentals you own, assets required to close and creditworthiness.

The latter requirement is perhaps the most important factor in securing an affordable investment. A high score will help you find the best interest rates and save money long before you decide to buy a rental home. It’s a good idea to order free copies of your TransUnion, Experian and Equifax reports from AnnualCreditReport.com to review your information. Highlight any negative items or errors that may be affecting your scores and consult with an expert about the best way to take action. You can also view two of your credit scores for free, updated every 14 days, on Credit.com.

Remember, whether you’re hitting up the housing market to invest or find your dream home, there are plenty of things you’ll want to do to get ready ahead of your search. Fortunately, we got a 50-step checklist for house hunters right here.

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Foreclosure Picture Improves, but Some States Drag Behind

Foreclosures reached an 11-year low in February, but not every state is doing so well.

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Time for Your Final Walk-Through? Make Sure You Have This Checklist

You're almost ready to close on your new home. Make sure you don't miss anything on your final walk-through with this handy checklist.

A few days before you sign the documents to finalize your purchase of a home, you’ll have the chance to take one last look through the property. The final walk-through is your last opportunity to confirm that the house is in similar or better condition than it was when it went under contract, and it’s also your chance to make sure no new issues have cropped up since the inspection.

What Should I Look for During My Final Walk-Through?

It has probably been weeks since you’ve seen the home and it’s exciting to walk through it again. You may be tempted to start mentally arranging furniture and picking out new paint colors while you’re there, but it’s in your best interest to put those feelings aside for now. This is your last chance to look for issues and work with the seller to address them before the home is officially yours. You should plan to spend 30 minutes to an hour walking through the home, paying careful attention to its condition.

In today’s competitive housing market, many buyers are waiving their home inspection to make a stronger offer. If that’s the case, it is especially important to focus on bigger red-flag items during your walk-through.

Before you head off to see your new home, it’s important you make sure you have your contract, inspection summary, a notepad, a camera, any photos you took of damage that needed repair, a cell phone and charger (to easily check that all electrical outlets are working) and, of course, your real estate agent. Make sure to coordinate with the sellers before deciding on a date. If you go too early they may not have finished moving out, and if you go too late, you may not have enough time to remedy any large issues that you spot.

Here are the big things to look for when making your final walk-through.

  • Are all agreed-upon repair items completed? (Ask to see receipts.)
  • Has the previous owner removed all debris, garbage and unwanted items? (Keep in mind, the house will likely not be professionally cleaned and will need a once-over when you move in.)
  • Has the yard been maintained?
  • Are all agreed-upon appliances still in the house and are they working properly?
  • Does the home still contain all furniture included with the purchase?
  • Are there any major holes or damages as a result of the previous owner moving out? (Normal wear and tear like nail holes can be expected.)

Here are some other things to look for once you have checked the above.

  • Do all lights and switches still work? (Keep in mind the home has likely been vacant for 30 or more days. If light switches don’t work, it could be due to burnt-out bulbs, which you’ll likely need to replace yourself.)
  • Do all power outlets work? (Use your cell phone and charger to quickly test whether outlets work).
  • Are appliances in working order?
  • Do toilets flush?
  • Do sinks, showers and tub spouts run? Can you spot any leaks?
  • Is there hot water?
  • Do sink and tub drain stoppers function?
  • Do all windows and doors open and close smoothly? And are all screens present and attached properly? Be sure to check that window latches and door locks are working properly.
  • Do the heat and air conditioning work?

And remember, your lender might run a final credit check before you close. You should keep an eye on your credit during this critical time. You can view a free credit report snapshot, which is updated every 14 days, on Credit.com.

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How to Write an Undeniable Offer Letter for Your Dream Home

Want to make sure you get the home you love? Open up with a heartfelt letter to the seller.

Buying a home in a competitive market means you need to have all your ducks in a row. You can be successful by putting your best foot forward before the starting gate. One way to spruce up your offer is to write a love letter to the seller.

All sellers have different reasons and motivations for selling their home. A major life event may have caused them to rethink their life and selling the house makes the most sense. They may have found their dream home or a better rental and need to sell the one you are looking at.

No matter what has happened, the dollar amount you are offering to purchase their home is going to carry the most significance to the majority of sellers. Making a strong offer with the guidance of your real estate agent and having a solid mortgage pre-approval in place is critical for success. Those are the key components required to make sure your chances increase for getting an accepted offer. Still, a stellar offer letter can break a tie between two identical offers — or even sway the owner your way if someone slightly bests your bid. With that in mind, here’s how to craft a killer offer letter for your dream home.

1. Write the Letter Yourself

This letter should come from you, not your real estate agent. The agent cannot convey the emotional attachment you feel toward the home the way you can. If your agent wants to write a companion letter or character profile, that’s fine, but a love letter that comes directly from the prospective buyer will be most meaningful. This letter should be impactful and compel the seller to choose you.

2. Explain Why You Want the Home

The reality is that you do not know the reason why they are selling their home (though your real estate agent may be able to supply some clues) so a good strategy is to give them the reason you want it. Write a letter to the seller appealing to their emotional side along with their financial interest in your offer. Write a genuine letter about why you are interested in buying their home specifically. What about it calls to you? Do you see your family living there for a long time?

3. Be Specific

If you really liked the way the backyard “felt” and you can see your kids playing there or getting married under a well-groomed tree, put it into words. Make the sellers see you in their home. It sounds sappy, but it can appeal to the right people. A letter can evoke pride for a seller in their home and can give them the satisfaction of being able to provide a home for a young family that will create more happy memories there.

4. Get Personal 

Talk about your family. Use this letter as a way to introduce yourself and tell the seller about your long-term goals. Let them know if you’ve been raised in the area and share with them why you think their home is the fit for you and yours.

5. Assure Them You’re a Strong Buyer

A seller will want to know a buyer can make good on their offer, so be sure to let them if you have a steady source of income, what you do for a living and, even, how solid your credit score may be. (You can see how your credit is doing throughout the homebuying process by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

One additional thing you should consider is having your lender call the listing agent in order to confirm your ability to purchase and willingness to perform. This is a bonus that can help push your offer over the top as this confirmation proves to the listing agent and sellers that you are serious and well-qualified. Communication in every real estate transaction is critical and this proactive approach reduces the amount of vetting that the listing agent has to do on their offers.

What’s in a Offer?

Remember all those ducks we mentioned earlier. In addition to your love letter, your offer to purchase someone’s home might include:

  • A cover letter from your agent explaining who you are and why they brought you to their home
  • The terms (total offer price, down payment, etc.) under which you would purchase their home.
  • In addition to that personal and detailed letter explaining why you would be a good fit for their home, you may also want to include a photo of you and your family.
  • A mortgage pre-approval letter from your lender showing you are dedicated to buying their home.

Keep in mind, a stellar offer letter is just one small part of the process. You can find 50 other steps house hunters can take to get ready for homebuying season here.

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When Is the Best Time to List Your Home for Sale?

Listing your home at the right time can make the sales process faster and more lucrative.

Selling your home can be a long process, but you can potentially speed it up and make more money if you list at the right time.

Homes listed in late spring typically sell faster and for more money, according to an analysis from real estate marketplace Zillow.

Specifically, homes listed from May 1 to May 15 sell nine days faster and for almost 1% more than the average listing nationwide, Zillow reported. The analysis also looked at the 25 largest metro areas, and in 20 of them, the best months to list were April and May.

The biggest effect was in the competitive Seattle market, where homes listed May 1 through May 15 sold for 2.5% more than average. That amounts to $9,300 extra for the average Seattle seller.

Sellers in other competitive markets, like Denver and Portland, Oregon, also saw premiums of at least 1.5% for listing in early May, according to Zillow.

Local weather can affect the best time to sell a house as well. In places that are warm year-round, like Texas, California and Florida, sellers have more flexibility over when they should list because there’s not as much variance in price based on listing month, Zillow said.

The competitive buying market nationwide contributes to these trends, said Dr. Svenja Gudell, chief economist for Zillow. She said the 2017 market is expected to tighten further, with 3% fewer homes on the market than the prior year.

“Many home buyers who started looking for homes in the early spring will still be searching for their dream home months later,” Gudell said in a release. “By May, some buyers may be anxious to get settled in a new home — and will be more willing to pay a premium to close the deal.”

The day of the week can also affect how many buyers view a listing, Zillow said. Listings that showed up on the Zillow website on Saturdays got an average of 20% more views in their first week on market than listings posted earlier in the week. Friday listings got a 14% bump.

Buying a home is a huge financial commitment. Check out our tips here on finding the right place for you. If you’re financing the purchase, make sure nothing is dragging down your credit scores. You can check two of your scores free, updated every 14 days, on Credit.com.

The following metro areas saw the biggest premiums from listing in late spring.

Seattle
Best Time to List: May 1 to 15
Average Sales Premium: 2.5%

Sacramento, California
Best Time to List: April 1 to 15
Average Sales Premium: 2%

Portland, Oregon
Best Time to List: May 1 to 15
Average Sales Premium: 2%

Denver
Best Time to List: May 1 to 15
Average Sales Premium: 1.7%

San Jose, California
Best Time to List: May 1 to 15
Average Sales Premium: 1.6%

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Want to Buy a Home in One of These 17 Markets? You’d Better Have Cash

Cash purchases still dominate in some housing markets. Here's why.

In 2005, Randy Moss, then a wide receiver for the Minnesota Vikings, pretended to moon Packers fans after scoring a touchdown. The NFL fined him $10,000. Asked by a reporter how he would pay, Moss responded succinctly: “Straight cash, homey.”

While cash purchases have dropped since the housing market bottomed out in 2012, many areas are still dominated by buyers taking the Moss approach when buying a home. According to data published by ATTOM Data Solutions (formerly RealtyTrac), at least 45% of the sales made in 17 metro areas were conducted using cash in 2016.

Cash sales are common in Florida, where retirees use the proceeds from sales in their home markets to buy retirement properties. But in other places, the prevalence of cash sales is driven largely by institutional investors, which ATTOM defines as any entity that buys at least 10 properties in a year, said Daren Blomquist, senior vice president for the property data company. In Binghamton, New York, where nearly 70% of home sales in 2016 were made in cash, the rise of such purchases over the past three years mirrors a rise in institutional investor sales.

The following are the 17 metro areas where cash sales were most common in 2016. (A note about the data: Some states are not required to disclose property sale information publicly, so there’s no cash-sale data for Alaska, Indiana, Louisiana, Missouri, New Mexico, Texas or Utah. Percentage denotes portion of total home sales that were made in cash.)

  1. Cape Coral-Fort Myers, Florida: 45%
  2. Huntington-Ashland, West Virginia, Kentucky, Ohio: 45.7%
  3. Trenton, New Jersey: 46%
  4. North Port-Sarasota-Bradenton, Florida: 47.2%
  5. Fort Smith, Arkansas, Oklahoma: 47.6%
  6. Ocala, Florida: 47.7%
  7. Urban Honolulu, Hawaii: 47.7%
  8. Atlantic City-Hammonton, New Jersey: 48.3%
  9. Reading, Pennsylvania: 48.4%
  10. Miami-Fort Lauderdale-West Palm Beach, Florida: 48.8%
  11. Raleigh, North Carolina: 50.1%
  12. Naples-Immokalee-Marco Island, Florida: 52.4%
  13. Montgomery, Alabama: 52.5%
  14. Macon, Georgia: 52.5%
  15. Syracuse, New York: 58.4%
  16. Buffalo-Cheektowaga-Niagara Falls, New York: 63.6%
  17. Binghamton, New York: 69.4%

Who’s Got All That Cash?

Institutional investors — mostly big banks — gobbled up lots of houses after the recession in big markets like Phoenix and Atlanta, but smaller copycats, operating in smaller markets, adopted the practice in recent years. These mid-tier investors usually seek homes priced around $150,000 or less, Blomquist said.

“They’re looking typically for starter homes they can rent out to people who would otherwise be first-time home buyers,” he said.

Recently, a number of web-based companies that allow individuals to buy, rehabilitate and rent properties remotely have sprung up, Blomquist said. These companies, like, for example, HomeUnion, Investability and Roofstock, typically pay cash for properties as well.

Institutional buyers can squeeze out regular folks looking to buy homes for themselves, but there’s good news for these people. Blomquist expects the practice to become less prevalent as banks become more willing to finance purchases. A drop in distressed sales, which in many states must be conducted in cash, should also contribute to a decline in cash purchases.

If you are looking to finance a new home, be sure to check your credit score to make sure it’s up to snuff — your lender certainly will. You can review two of your credit scores for free, updated every 14 days, on Credit.com. And make sure to avoid the pitfalls a lot of first-time homebuyers make.

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Mortgage Broker vs. Loan Officer: The Best Way to Shop for a Mortgage

Senior businessman showing a document to sign to a couple

When you need to take out a loan to buy a home, you generally have two options. You can work with a lender’s loan officer or hire a mortgage broker. Loan officers and mortgage brokers are not the same thing, although the terms are often used interchangeably.

Loan officers work for a bank or a lender and will only be able to show you mortgage options from that financial institution. In contrast, mortgage brokers are individuals or firms that are licensed by a state to act as middlemen between you and multiple banks or mortgage lenders. Because brokers aren’t beholden to a particular lender, they can shop around and try to find you a loan with terms that best fit your circumstances.

Why should you consider working with a mortgage broker?

One of the biggest benefits to working with a mortgage broker is that they take over the job of shopping for a loan. You might be able to do this on your own, and in some cases, you could find a better loan than the broker, but it can be a time-consuming and complicated process.

A broker can help collect and organize the documents you need to apply for a mortgage, such as your proof of employment and income, tax returns, a list of your assets and debts, and credit reports and scores. The broker can then use the information to look for loans, compare rates and terms, and apply for mortgages on your behalf.

Casey Fleming, a mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says one of the big benefits is that brokers are generally “on your side,” while a loan officer represents the lender’s interest. Brokers are also incentivized to find you a loan that meets your needs and see the deal through closing because they don’t get paid until you close on the home.

Additionally, brokers might have access to lenders that don’t work directly with consumers, meaning you wouldn’t be able to get a loan from the lender even if you tried. And in some cases, brokers can leverage their relationship with a lender to get it to waive fees you’d otherwise have to pay.

Are there risks involved with using a mortgage broker?

While working with a broker could be a good idea, there are potential drawbacks to consider. “Not all brokers are created equal,” says Fleming. “Many have only a few sources for loans, and may not be able to find the best pricing.” There are also some mortgage lenders that don’t work with brokers and will only offer loans directly to consumers (through one of the lender’s loan officers).

Using a mortgage broker can also be expensive. Although you may find the services are worth paying for, consider the costs of using a broker:

Mortgage broker fees

Mortgage brokers are often paid in one of two ways. You may be able to choose how you’d like to pay the broker, or opt for both payment methods.

Some mortgage brokers will charge you a commission based on the loan you take out, often about 1% of the loan. For example, that’s a $3,000 fee on a $300,000 mortgage loan. You’ll pay this fee as part of your closing costs when you close on the home.

Other brokers may offer you a fee-free mortgage. However, what likely happens in this case is that the mortgage broker arranges a loan with a higher interest rate, leaving room for the lender to give the broker a cut. This route could cost you more over the lifetime of the loan but might be the better option if you want to minimize costs now.

Where to find a good mortgage broker

“Word of mouth is very useful when it comes to finding a good [mortgage broker],” according to Professor David Reiss, a real estate law professor at the Brooklyn Law School in Brooklyn, N.Y. You could ask friends or family members who’ve recently bought a home if they used a mortgage broker, as well as your real estate agent if he or she can recommend a broker.

However, don’t settle for the first recommendation you receive. The Federal Trade Commission recommends interviewing several brokers and trying to find one who’ll be a good fit for your home search.

Ask about their experience with buyers like you in the area, the fees they charge, and how many lenders they work with. “You want to know whether the mortgage broker can find competitive mortgage products, is well organized so that loans close in a timely manner, and whether it keeps away from bait-and-switch tactics that can be so difficult to deal with when buying a home,” says Reiss.

You can also look for reviews of the mortgage broker online, and check for complaints against the company with the Better Business Bureau. The National Association of Mortgage Brokers (NAMB) also has a directory of state associations and regulators, which you can use to check the broker’s license and standing.

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10 Cities Americans Are Leaving the Fastest

These 10 cities are losing population faster than any other large American cities.

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Use This Calculator to See How Long It Will Take You to Save for a Home

couple apartment moving house housing Saving up for a home can feel like a seemingly endless journey for any prospective buyer — especially young workers. In our 2016 U.S. Housing Affordability Study, the MagnifyMoney team analyzed 380 metros in the U.S. and found nowhere in the U.S. where a worker who began saving today could reasonably save for a home in under one year.

On average, it would take workers aged 25 to 44 roughly five and half years to save for a home if they began saving now. Workers under age 25 would need more than five times as long (27.2 years). The journey would be shortest for middle-aged homebuyers aged 45 to 65, who we found would need just an average of 4.69 years to save enough for a new home.

In our study, we wanted to give a realistic picture of homeownership. We based our calculations on a worker whose goal was to save 20% of their income annually toward a goal of homeownership. We determined they would need to save enough to put down a 20% downpayment, plus 4.5% for closing costs. We also factored in a one-month emergency fund equal to one month’s mortgage payment.

But we also know it’s unreasonable to expect everyone to be able to set aside that much of their earnings in savings, especially early in their careers. So we created a calculator anyone can use to find out how long it would take them to save up for a new home.

Check it out below and read on to learn more about how it works.

Calculating Your Chances of Homeownership

Our unique Home Affordability Calculator asks for your gross monthly income (that is, how much you earn each month before taxes are taken out) and location first.  From there, we give you a quick estimate of how long it would take you to save for a home if you were to start saving now.

You can customize all of the fields of the calculator from there to tailor your estimate more closely to your circumstances. Can’t afford to save 20% of your income? Adjust your savings rate to whatever rate you think you can manage, and the calculator will update your estimate.

For some, this estimate may look more like a life sentence rather than a reasonable timeline toward saving for a home. Here, we can admit this calculator isn’t perfect. Your earnings today may look much different than a few years from now, or even a few months from now. As you work your way up in your career and are able to set aside more funds toward a new home, you will certainly shave time off your savings goal. Furthermore, you may already have some savings in the bank, which we this calculator does not take into consideration.

Read more about our findings in our 2016 Housing Affordability Study.

Here are the most affordable metros for each age group:

45 to 65 year olds:

45-65-The-Most-Easiest-Places

25 to 44-year-olds

25-44-The-Most-Easiest-Places

15 to 25-year-olds

15-24-The-Easiest-Places

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MagnifyMoney: 2016 Housing Affordability Study

Housing Affordability StudyAs the cost of housing soars ever higher and household earnings remain stubbornly stagnant, how realistic is homeownership for young people today?

Saving up for a new home can feel like an endless slog for young working Americans. The upfront costs alone — the down payment, closing costs, property taxes, etc. — are enough to scare off prospective buyers who are struggling to make ends meet.

Just over one-third of Americans under age 35 owned homes as of mid-2016, down 12% from 2010, according to U.S. Census data. While homeownership rates fell across all age groups during that same period, none experienced a steeper drop-off than the under-35s.

MagnifyMoney wanted to figure out how realistic homeownership is for young Americans today — that is, how long it would take them to save up for a new home in their area if they started saving now.

Calculating Home Affordability

Our analysis revealed two different sets of buyers — those who can afford the cost of a new home in their area and those who cannot. Affordability was largely driven by a worker’s ability to qualify for a mortgage loan large enough to cover the cost of a median-priced home in their metro area. Given these two different cases, we used two methods to determine how long it would take these groups to save for a home.

For buyers who can’t afford a large enough mortgage:

We assumed that the borrower can spare 35% of their monthly income toward mortgage-related payments. Based on this amount and the current interest rates for a 30-year fixed-rate mortgage, we calculated the total mortgage that the borrower can afford to take.

We then took the mortgage amount they would qualify for and subtracted it from the cost of a median-priced home in their area to find the mortgage gap they need to fill. Then, we added other necessary upfront costs: 4.5% closing costs and a standard emergency cash reserve equal to one month’s mortgage payment.

We determined, based on the median income for their age, how long it would take to save that amount, assuming a 20% savings rate.

Example:

We estimate a 25 to 44 year-old homebuyer in Salinas, Calif., would reasonably qualify for a $275,385 mortgage. A median-priced home in Salinas, Calif., costs $750,000. So, she would have to save at least $474,615 to fill the mortgage gap. On top of that, she would pay another $33,750 in closing costs (assuming an estimate of 4.5%) and need to set aside a $1,274 emergency cash reserve.

In total, she would need to come up with $509,612 to be able to buy a home in her area. If she saved 20% of her income toward that goal, it would take her 46.75 years.

For buyers who can afford a large enough mortgage:

Once again, we assumed that the borrower can spare 35% of their monthly income toward mortgage-related payments. Based on this amount and the current interest rates for a 30-year fixed-rate mortgage, we calculated the total mortgage the borrower can afford to take.

We then determined how much they’d need to save for a 20% down payment. We added to that the cost of closing costs and a one-month mortgage reserve.

For example:

A median-priced home in Johnstown, Penn., costs $74,900. So this buyer would have to save at least $14,980 to cover a 20% down payment. On top of that, he would pay another $3,370 in closing costs (assuming an estimate of 4.5%) and set aside $1,370 in an emergency cash reserve.

In total, he’d need to save $19,720. Saving 20% of his income toward this goal, it would take him 1.85 years.

Key Findings

  • Get ready for the long haul: Of the 380 metro areas we analyzed, we found no place in America where a worker of any age group could realistically save up for a new home in less than a year.Across all 380 metro areas analyzed…
    • 45 to 65 year-olds would need an average of 4.69 years to save for a home.
    • 25 to 44 year-olds would need an average of 5.63 years to save for a home.
    • 15 to 24 year-olds would an average of 27.2 years to save for a home.
  • Where homeownership is completely out of reach:
    • In 79% of metros (79 out of 380), workers of all age groups wouldn’t be able to qualify for a mortgage loan large enough to cover the cost of a median-priced home.
    • 15 to 24 year-olds wouldn’t qualify for a mortgage loan large enough to cover the cost of a median priced home in 357 out of 380 metros analyzed (93.95%).
    • 25 to 44 year-olds wouldn’t qualify for a mortgage loan large enough to cover the cost of a median-priced home in 68 out of 380 metros analyzed (17.89%).
    • 45 to 65 year-olds wouldn’t qualify for a mortgage loan large enough to cover the cost of a median-priced home in 29 out of 380 metros analyzed (7.63%).

The least and most affordable metros for 25 to 44-year-olds

25-44-The-Most-Easiest-Places
25-44-The-Most-Difficult-Places

A closer look at the housing market for 25 to 44-year-olds:

  • The most affordable metro area: Johnstown, Penn., is the easiest place for 25 to 44 year-olds to save for a home. The key: Affordable housing is in abundance. A median-priced home in Johnstown is $74,900. With a goal of saving enough to cover a 20% down payment, closing costs, and a one-month mortgage payment reserve, the total amount workers would need to save is $19,720. Earning the median annual income for that area of $53,164, they would need just 1.85 years to save.
  • The least affordable metro area: Salinas, Calif., is the most difficult metro area for 25 to 44 year-olds dreaming of homeownership. Earning the median annual salary of $54,499 and looking at a median-priced home listed at $750,000, they would need a staggering 46.75 years to save up enough. The reason? On an annual household income of $54,499, a homebuyer would only realistically be able to qualify for a $271,000 30-year fixed-rate mortgage loan, leaving a half-million-dollar gap to fill.
  • Midwest is best: 9 out of the 10 most affordable metro areas are located in the Midwest, where housing prices are significantly lower compared to other regions. On average, it would take just 2.28 years for a 25 to 44 year-old to save for a home in the 10 most affordable metros.
  • California is where homeownership dreams go to die: 9 out of the top 10 most expensive metro areas for 25 to 44 year-old homebuyers are in California.
    • The average time needed to save for a home in the top 10 most expensive metro areas is a whopping 29.15 years.
    • It would take 25 to 44 year-olds at least three years to save for a home in 7.37% of metro areas.
    • It would take 25 to 44 year-olds between three and five years to save for a home in 53.16% of metro areas.
    • It would take 25 to 44 year-olds between five and 10 years to save for a home in 34.47% of metro areas.
    • It would take 25 to 44 year-olds more than 10 years to save for a home in 5.00% of metro areas.

The least and most affordable metros for 45 to 65-year-olds

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A closer look at the housing market for 45 to 65-year-olds:

  • The most affordable metro area: Danville, Ill., is the easiest place for 45 to 65 year-olds to save for a home today. A median-priced home in Danville is $68,200. With goal of saving enough to cover a 20% down payment, closing costs, and a one-month mortgage payment reserve, the total amount workers would need to save is $18,012. Earning the median annual income for their age group in that area ($51,975), they would need just 1.73 years to save.
  • The least affordable metro area: Homeownership dreams don’t get any more realistic with age in Salinas, Calif. It is also the most difficult metro area for 45 to 65 year-olds dreaming of homeownership. Even though this age group earns a median income 22% higher than 25 to 44 year-olds in this area, it would still take them nearly three decades (28.98 years) to save up for a median-priced home of $750,000. On an annual household income of $70,368, a 45 to 65 year-old homebuyer would only realistically be able to qualify for a $377,567 30-year fixed-rate loan, leaving a massive gap to fill — even without including closing costs and a one-month mortgage reserve.
    • It would take 45 to 65 year-olds at least three years to save for a home in 16.32% of metro areas.
    • It would take 45 to 65 year-olds between three and five years to save for a home in 57.37% of metro areas.
    • It would take 45 to 65 year-olds between five and 10 years to save for a home in 23.16% of metro areas.
    • It would take 45 to 65 year-olds more than 10 years to save for a home in 3.16% of metro areas.
  • Midwest is best: 9 out of the 10 most affordable metro areas for 45 to 65 year-olds are also located in the Midwest, where housing prices are significantly lower compared to other regions.
    • On average, it would take just under three years (2.08) to save for a home in the 10 most affordable metros.
  • The California struggle: 9 out of the top 10 most expensive metro areas for 45 to 65 year-old homebuyers also are in California.
    • The average time needed to save for a home in the top 10 most expensive metro areas for this age group is a whopping 19.72 years.

The least and most affordable metros for 15 to 24-year-olds

15-24-The-Easiest-Places
15-24-The-Most-Difficult-Places

A closer look at the housing market for 15 to 24-year olds:

Of course, we don’t know many 15-year-olds who are shopping around for a single-family home these days, but U.S. Census Bureau data limited us to this age range. However, our findings still shine a light into the challenges facing the youngest homebuyers.

  • It would take 15 to 24 year-olds at least three years to save for a home in 0% of metro areas.
  • It would take 15 to 24 year-olds between three and five years to save for a home in 1.58% of metro areas.
  • It would take 15 to 24 year-olds between five and 10 years to save for a home in 23.42% of metro areas.
  • It would take 15 to 24 year-olds more than 10 years to save for a home in 75.00% of metro areas.
  • The most affordable metro area: Sheboygan, Wisc., is the easiest place for 15 to 24 year-olds to save for a home today. Although median-priced homes are relatively more expensive in Sheboygan ($134,900) than other inexpensive metro areas on this list, young workers there earn relatively higher salaries, which enables them to save more toward future home costs. With a goal of saving enough to cover a 20% down payment, closing costs, and a one-month mortgage payment reserve, the total amount workers would need to save is $33,877. Earning the median annual income for their age group in that area ($38,510), they would need just 4.40 years to save.
  • The least affordable metro area: Santa Cruz-Watsonville, Calif., isn’t simply a difficult place for young workers to save for a home — it’s pretty much impossible. On an annual household income of $21,178, a 15 to 24 year-old homebuyer would only realistically be able to qualify for a $36,506 30-year fixed-rate mortgage loan. With a median-priced home listed at $769,500, their mortgage loan would hardly make a dent. They would need 181.27 years to save enough to fill in that gap.
    • In the 10 most expensive metros, it would take 15 to 24 year-olds an average of 129.53 years to save for a home.
  • Things look much better in the South and Midwest: The 10 most affordable metro areas for 15 to 24 year-olds are also located in the Midwest and the South, where housing prices are significantly lower compared to other regions.
    • On average, it would take just under five years (4.79) to save for a home in the 10 most affordable metros.
  • Surprisingly expensive metros for 15 to 24 year-olds:
    • While 6 out of the 10 most expensive metro areas are located in California, there were some surprising findings in other states.
      • The 4th most expensive metro is Corvallis, Ore. Home prices are half as high as the most expensive metros on this list, but median incomes for this age group are among the lowest: $12,369.
      • Morgantown, W.Va., is the 6th most unaffordable metro for the youngest workers. 15 to 24 year-old workers in Morgantown earn among the lowest median incomes in the 380 metros we analyzed: $8,805.

Housing Affordability Calculator

Find out how long it would take you to save up for a home in your area.

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Data analysis was conducted by Naveen Agarwal, MagnifyMoney Senior Data Analyst.

Metro Rankings for Ages 15 to 25

Metro Rankings for Ages 25 to 44

Metro Rankings for Ages 45 to 65

Metro Rankings for Ages 65 and Up

Metros by State: Searchable Database

Full Study Data

Appendix/Data Sources

Home prices: June 2016 median listing prices data provided by Zillow

Median income: Annual household income by age group and metropolitan area for 2014: U.S. Census Bureau.

Real Estate/Property Taxes: Real estate taxes for owner occupied units for metropolitan areas: U.S. Census Bureau

Mortgage interest rate: Bankrate.com National average on a 30-year fixed rate mortgage is 3.57% as of Sept. 1, 2016.

Downpayment: We assume a downpayment of 20%.

Savings rate: We assume homebuyers would save 20% of their annual take-home pay.

Closing costs: We assume closing costs of 4.5%.

Home Insurance rates by metro area: National Association of Insurance Commissioners (NAIC)

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