Around half of potential homebuyers say they can't afford a down payment and closing costs on a property in the U.S. because they don't make enough money and living costs are too high, a new Bankrate survey finds.
Considering that down payments are often 20% of the home price, they represent a considerable upfront cost for most buyers. Closing costs, at usually about 3% to 6% of the mortgage loan, are often quite expensive too.
Bankrate surveyed 864 U.S. adults January 2024 who are aspiring or prospective homeowners, which includes those who have owned a home in the past but currently don't, as well as first-time homebuyers.
When asked why they couldn't afford the upfront costs for a home, the reasons most commonly listed by survey recipients were:
- Income isn't high enough: 54%
- Cost of living is too high: 51%
- Credit card debt: 18%
- Family/friends can't help: 15%
- Student loan debt: 10%
Only 13% of potential homebuyers agreed with the statement "Nothing is holding me back."
And as home prices continue to rise, the size of down payments are likely to grow as well.
Many buyers feel like home ownership is permanently out of reach
When asked when they might be able to afford a down payment, 20% of respondents said "never." Another 30% said it would take more than five years to save up enough money to afford a down payment.
That's perhaps not surprising considering that, since 2020, median home prices have risen by 16%, according to the most recent U.S. Census Bureau data.
For a median priced home worth $417,700, a 15% down payment would cost $62,655. That's a lot of money considering that the median U.S. household income is $74,580, according to 2022 U.S. Census data.
And private insurance, which is required for down payments that are under 20% of the total mortgage, typically costs 0.46% to 1.5% of the loan amount, according to the Urban Institute.
Nearly 2 in 5 survey respondents don't see much reason for optimism, either: They expect that mortgage rates will remain elevated for the foreseeable future.
Many experts predict that average 30-year fixed rates will inch down from 7% to 6%, that might not happen until late 2024. And even if mortgage rates drop by 1%, the savings might not be enough to bring back cost-conscious buyers.
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