Aspiring homeowners often find that saving for a down payment can be a major obstacle in the pursuit of their dream home. According to a recent report, the rising cost of homes, with the median price now standing at around $400,000, has made it increasingly difficult for home buyers to accumulate the necessary funds.
In fact, the National Association of Realtors’ latest findings reveal that 38% of first-time home buyers consider saving for a down payment to be the most challenging aspect of the home buying process.
Obstacles for First-Time Buyers
For those entering the housing market for the first time, three primary reasons hinder their ability to save for a down payment:
- High Monthly Rent or Mortgage Payment (56%)
- Student-Loan Debt (45%)
- Auto-Loan Debt (38%)
This data comes from the NAR’s 2023 Profile of Home Buyers & Sellers, released on Monday.
On average, first-time buyers are expected to make an initial payment of 8% of the home’s purchase price. For a median-priced home of $400,000, this equates to approximately $32,000. It’s worth noting that the median price represents the midpoint in the range, with half of all homes priced below and above this amount.
Repeat Buyers and Down Payments
In contrast to first-time buyers, repeat buyers face less difficulty in saving for a down payment. Only 7% of repeat buyers expressed challenges in this area, as revealed in the NAR survey. This group benefits from being able to utilize the proceeds from the sale of their previous home to finance their new purchase.
Overall, while saving for a down payment can present hurdles for many potential buyers, understanding the specific obstacles and exploring available options can help individuals overcome this important step on their path to homeownership.
The Challenges of Saving for a Down Payment
Many repeat buyers face difficulties when saving for a down payment on a home. These challenges are often attributed to high rents or mortgage payments, as well as credit card and student loan debt.
According to a survey conducted by the National Association of Realtors (NAR), almost 40% of first-time buyers and 16% of repeat buyers reported having student debt. The median amount of student debt held by both groups was $30,000.
Despite the pause on student loan payments during the pandemic, buyers still took their student debt into account when planning for a home purchase. Jessica Lautz, Deputy Chief Economist and Vice President of Research at the NAR, explained that it is a significant factor in the overall calculation of saving for a home. The temporary nature of the payment pause may have caused buyers to expect their student loan payments to resume soon, leading them to consider its impact on their finances.
Auto loan debt also poses a major obstacle to saving for a down payment. The percentage of car buyers with monthly auto payments of $1,000 or more reached a record high of 17.5% in the third quarter, surpassing the previous peak of 17.1% in the second quarter, according to Edmunds.
The NAR revealed that home buyers who managed to pay down their debt while saving for a down payment typically waited for a median of four years before making their home purchase.
The majority of first-time buyers made sacrifices in order to afford their homes. These sacrifices often involved cutting back on spending for luxury items, entertainment, and clothing.