5 best and worst cities for millennials to buy a home

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5 best and worst cities for millennials to buy a home


Young Americans are waiting longer to buy homes than their parents: the median age of a first-time home buyer is now 32.5, compared to 30 in the 1970s. There may be many reasons for this delay, but a huge one is likely the price of homes - it's more challenging for today's young people to save for a down payment and qualify for a mortgage.

So if you're considering buying a home, which U.S. cities are the best to buy in? And which are the worst?

Using our database, we set out to find some answers. By comparing U.S. Census income and unemployment data to Credit Karma member mortgage debts, we calculated how long it might take the average millennial (for our study, Americans age 18 to 34) to pay off a mortgage with a set percentage of their expendable income in the 100 most populated U.S. cities.* Here's what we found.

Top five cities for millennials to buy a home

The top of the list is dominated by the Rust Belt -- Buffalo, Detroit, Cleveland, Toledo and Pittsburgh make up the top five.

Why are these cities more affordable for young home buyers? Our methodology suggests that it's pretty straightforward: They offer respectable salaries for millennials, especially in relation to how much the average mortgage is in that particular city.

At $114,956, Pittsburgh's average mortgage size is the 10th smallest of the 100 cities we looked at, while Pittsburgh millennials earn a median annual salary of $35,915. Compare this to Los Angeles, where the median millennial salary is less ($33,667) but the average open mortgage is $388,150.

In Detroit, Cleveland, Toledo and Pittsburgh, we found that a young home buyer could finish paying off a mortgage in under or around a decade. And in Buffalo, the number one city, a millennial could pay down a mortgage in 9 years.

Worst five cities for millennials to buy a home

The bottom dwellers have something in common, too. Los Angeles, Irvine, Fremont, Anaheim and Chula Vista - the worst five cities for millennials to buy a home -- are all in California.

In fact, it's not until Honolulu (seventh worst) that we hit anywhere outside the Golden State, and it's not until New York City (fourteenth worst) that we see anywhere east of Arizona. So what's going on out west?

It may not be an income issue -- Irvine and Fremont both rank in the top 20 there. The problem, as you may have guessed, is more likely soaring housing prices. According to the Zillow Home Value Index, the median home price in Los Angeles has risen 6.2 percent in the past year alone. Compare that to Pittsburgh at 4.1 percent, or Detroit, where home values actually fell over that time period.

Credit Karma members in both Fremont and Irvine average over $444,000 in open mortgage debt, making them second only to our members in San Francisco, who lead the way at a whopping $526,119.

The result is typically a long, painful repayment process. For the average millennial to pay off a mortgage in Los Angeles, we project it would take a staggering 44 years and 6 months. That's about five times longer than Buffalo.

What you can do

Now, I don't expect the entire city of Fremont to clear out to the Midwest, or for New Yorkers to flee to Cleveland.

If where you're living isn't super affordable for new home buyers, don't give up hope. Instead, you can start taking some practical steps with an eye on the future.

1. Start saving.

Saving up beforehand can help you put more money into a down payment, which could lower your monthly payments and save you money on interest.

Bob Walters, chief economist for Quicken Loans, also stresses the importance of realistically estimating your expenses.

"Oftentimes, home buyers calculate their monthly payment without considering the many other costs that come with homeownership," he says. Walters suggests that home buyers should plan to spend about one percent of the total value of their home on things like insurance and taxes every year. So if your home is worth $200,000, he says you should should probably set aside at least $2,000 annually for these kinds of expenses, though this is just a rule of thumb and your requirements may vary.

If saving isn't a habit for you yet, consider setting up an automatic savings plan that'll automatically transfer a set amount of money from your checking account to your savings each month.

2. Build your credit.

Good credit can make a huge difference when it's time to take out a mortgage. A great credit score could help you land lower rates, and could end up saving you lots of money in interest. If your score isn't where you want it to be right now, it could be worth taking the time to build it up before you take the plunge into homeownership.

Many lenders will focus on a few key aspects of your credit health, including your on-time payment history and age of credit history.

3. Do your homework.

Walters stresses the importance of doing a lot of research before you buy.

"It's critical that the prospective homebuyer get preapproved by a reputable mortgage company before looking for a home," he says. A preapproval typically includes a full credit check and evaluation of your income, and can give you an idea of what kind of rates you can expect. Walters notes that this step will allow you to feel more confident about exactly how much you can afford.

Once you're in the market, you'll want to shop around as well. "Research and price homes in the neighborhood you're looking for," Walters says. After that, you can explore your options by working directly with prospective lenders.

Bottom line

Whether you're in Akron or Santa Monica, focus on practical, productive steps that'll help you get prepared for buying a home. Getting educated is half the battle.

*Methodology: The data assesses how quickly 18-34 year olds could pay off their mortgages, assuming they paid 28% of their expendable income towards their mortgages. The calculation looks at the average size of open mortgages among Credit Karma's more than 40 million members living in the 100 largest cities in the U.S. and the U.S. Census median income by city for 18-34 year-olds, adjusted for local unemployment rate.

About the author: Mike Goldstein is Copywriter at Credit Karma. Since joining the team in June 2013, he's been delivering the financial know-how on the daily. When away from work, you can find Mike watching hockey, Twittering for hours and frequenting trivia nights.

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