It’s not just finding a home that poses a problem for some would-be homeowners. Saving for a downpayment is a top hurdle to owning a home and thus living the American Dream for a majority of renters surveyed by Zillow.
A Shared Concern
The first-ever Zillow Housing Aspirations Report revealed that a whopping 67.9% of the respondents considered downpayment as the number 1 impediment to homeownership. The ZHAR in April is a poll among 10,000 adult renters across 20 metropolitan areas in the U.S.
Per the survey, this concern over downpayment is spread out across all demographic groups, regardless of age, gender, income and region, who felt in varying degrees.
Younger renters in the millennial generation aged 18 to 34 showed more concern for this woe compared to older renters belonging in the 34-54 age group, and 55 and above.
Interestingly, those earning $70,000 a year and considered in the highest income bracket are more concerned about downpayments than those renters belonging to the low income, middle income, and high income groups.
Next to downpayment, the surveyed renters gave out these barriers to their homebuying plans and their corresponding percentages as tabulated in the report:
- “Qualifying for a mortgage” – 53.2%
- “Debt burdens” – 50%
- “Job security” – 38.5%
- “Renter not being in a position to settle down” – 20.1%
- “Complaints about not enough homes being for sale” – 11.2%
Hurdles Within a Hurdle
“Given the many hurdles that need to be cleared before successfully buying a home even in the best market conditions, it might be somewhat surprising that down payment concerns resonated so strongly with respondents,” wrote Svenja Gudell, chief economist at Zillow.
Home prices appreciating adds complexity to renters’ situation. One may be saving toward the right amount of downpayment for a home only to see its price go up. It’s also more difficult for renters to set aside funds from their income with a substantial cut going to the monthly rent.
Per Zillow analysis, the average homebuyer in 2016 could allot 15.8% of his/her household income toward the mortgage repayment while the average renter would likely spend 29.2% of his/her income for rent each month. In very expensive housing markets, a downpayment could exceed a year’s worth of income.
Ms. Gudell did point out that getting a downpayment jumpstarts the homebuying process as it helps determine the final budget for a home and leads the homebuyer to identify which home fits that budget; securing a mortgage and closing that mortgage would follow.
In the face of downpayment woes, 63% of the respondents are still confident that they will be able to afford a home someday. Twenty-five percent of them have buying a home in three to five years’ time in the horizon.
Indeed, almost the same number of respondents who acknowledged the downpayment hurdle (66%) believe that owning a home is still necessary to achieving the American Dream as per the ZHAR.