First-time buyers are moving to lower-cost areas as home prices are rising

With the rising home price, down payment requirement is increasing and many first-time homebuyers are facing unaffordability.

The median home price in the U.S. is now $350,000, which means the average buyer would need to pay $70,000 as a deposit on their purchase to avoid private mortgage insurance.

There are low down payment loans available to buyers who cannot meet the 20% down threshold. 

The FHA for example requires just 3.5% down on its loans, but that still translates to $12,500 for a median-priced home.

Lawrence Yun, the NAR’s chief economist told Forbes, “Higher home prices mean higher down payments, and first-time buyers may suddenly realize it is a challenge unless they can tap into financial help from family members.”

Due to the COVID-19 pandemic lenders now are demanding to see higher credit ratings from prospective homebuyers as their default risks from existing homeowners grow. 

According to July data from the Urban Institute, the median FICO score required to qualify for a mortgage is around 700. 

But in pricier markets like in San Francisco, the median FICO score rises to 777.

However, those who don’t have a high enough credit rating can turn to nonbank lenders instead, such as Quicken or LoanDepot. 

For these lenders, the median FICO score required is usually less than banks, but the interest on the loan will inevitably be higher to cover the added risk.

As most people are now working remotely and are no longer required to turn up at the office, the temptation to move away from expensive urban centers to smaller communities where homes are cheaper, have increased.

“Rural areas have mortgages that don’t require down payments. And some workers who can work from home may want to consider outer suburbs or small towns where USDA home loans are available and where homes are very affordable,” Yun told Forbes.