You need to put down 61.7% to afford metro Boston home

The dreams of homeownership in the United States are moving further out of reach for middle-class Americans. Affording even the down payment for a typical US home can be a burden, as home prices rise, interest rates remain high, and inventory lags demand. 

Now imagine what it’s like in metro Boston. 

A median-income household needs to put down 35.4 percent to afford the typical monthly mortgage payments in the United States, according to a June 20 analysis by Zillow. In Boston, that number soars to 61.7 percent, since the typical home value here is $701,349, according to the real estate marketplace.

Boston is a city where people “want to live, work, and go to school,” said Dan Richards, president of Flyhomes Mortgage. Despite the housing challenges, the Boston housing market is going to stay on the current trajectory of growth, Richards added. 

We’re victims of our own success, it seems.

“Homes in Boston are expensive, even after you factor in the higher incomes that Boston residents earn,” said Orphe Divounguy, a senior economist at Zillow.

According to Zillow, a middle-income household would need to save for more than 23 years to afford to buy the median-priced home here.

Here’s how much of a down payment you need in some of the nation’s largest cities, according to Zillow:

It all comes down to simple math. 

Divounguy said the more money a buyer puts down, the smaller the loan will be, bringing down the monthly payments. High interest rates have pushed the monthly cost of a mortgage out of reach for many home shoppers, he added.

It’s also a matter of demand.

 “Higher wages and fewer homes drive up the overall cost of housing, and higher housing costs mean higher down payment amounts,” Richards said.

The American dream of homeownership is moving further out of reach for more people.

“These are not achievable numbers for the vast majority of people,” said Ted Rossman, a senior industry analyst at Bankrate, a financial services company based in New York City. Realistically, people are putting down far less, Rossman said.

Rossman said the jump in mortgage rates has been a huge obstacle for buyers, especially first-time buyers. “That’s kind of a double whammy for home buyers, because prices have remained high, in part because inventory has been low.”

The minimum down payment on a conventional mortgage is 3.5 percent for Federal Housing Administration loans. “There’s a discussion to be had about what’s truly affordable and what works with your budget, but this notion that people are putting more than 50 percent down, it’s just not happening,” Rossman said. 

For Elliot Schmeidl, director of homeownership at the Massachusetts Housing Partnership, a nonprofit affordable housing organization, the down payment is more than just an affordability issue; it is also a matter of housing market competitiveness. 

“A lot of units are sold with 100 percent cash,” said Schmeidl, adding that if you put down 5 percent or 10 percent, the seller is going to take the cash offer instead of your bid. He said the Zillow analysis sheds more light on the percentage of “down payment needed to be competitive in the market.”

Friends and family to the rescue — for some.

The Zillow analysis states that 43 percent of last year’s home buyers used gifts from family and friends for their down payment. Divounguy blamed the rise in home values in Boston for that. “It’s a really big challenge to save up for a down payment on your own,” he said.

Richards said “a very large percentage” of Flyhomes’ first-time clients have taken help from friends and family to afford their down payment. Borrowing money from banks is always an option, he said, but there can be complications in terms of whether or not you qualify for it.

“Other than having access to liquid capital, either through your own means or through family means, there’s no ideal way outside of saving as much as you can,” he said. 

What’s a buyer to do?

The senior economist at Zillow recommended talking to a mortgage lender early in the home shopping process. Since they have expertise in the matter, they can help buyers understand their options, including state and community assistance programs.

Divounguy said down payment assistance is a great but “often overlooked” resource. The average amount of down payment assistance available in metro Boston metro is more than $28,000, he said. “For those who qualify, down payment assistance can amplify what they already have saved up.”

The issue is particularly profound for first-time buyers.

“Homeownership is the primary source of net worth and generational wealth for most Americans, and declining affordability is making it harder for average earners to get their foot in the door of an entry-level home,” said Rob Chrane, founder and CEO of Down Payment Resource. “Luckily, there are more than 2,373 down payment assistance programs nationwide with at least one program in every county and 10 or more programs available in 2,000 counties. In fact, down payment assistance providers have responded to the difficult housing market by increasing the number of programs offered and expanding inventory options with support for manufactured homes and owner-occupied multi-unit homes.”

Don’t rush into a purchase you might regret later, Rossman said. “It’s better to buy a house a year too late, so to speak, than to buy a year too early.” 

He added that having a bit more time to save and prepare is important because you will be facing more than the home’s price: There are maintenance costs, property taxes, insurance, utilities, customization, etc. “There’s going to be costs you haven’t even thought of,” he said.

In Massachusetts, Schmeidl said, there is a network of nonprofits around the state that offer home buyer education. Those programs help people prepare for ”the biggest purchase of their lives.” This includes helping them create a financial plan. 

“Down payments are a barrier for all buyers, not just those making the median income,” Divounguy said.