IRVINE, CA—RealtyTrac recently analyzed affordability in512 U.S. counties with a combined population of 235 million, looking at the impact of lowering the down payment for conventional loans (those that can be sold to Fannie Mae and Freddie Mac) from the traditional 20% to as low as 3% — as has been suggested recently by FHFA director Mel Watt as a way to “increase access for creditworthy but lower-wealth borrowers.”

RealtyTrac finds that heavy loads of student loan and automobile debt can be an additional barrier to homeownership.

“While lower down payments may help pave a quicker path to homeownership for some prospective homebuyers, a bigger obstacle to homeownership is the additional non-mortgage debt many borrowers bring to the table,” said Daren Blomquist, vice president at RealtyTrac. “For borrowers without additional debt, monthly house payments are affordable in more than 90% of U.S. housing markets — whether they make a 20% or 3% down payment. But for borrowers with the additional debt burden of student loans and car payments, monthly house payments are affordable in less than half of U.S. housing markets with a 3% down payment.”

Four takeaways and one bonus observation from this analysis:

1. Lower down payments will help with one major hurdle to homeownership…

o Across all markets analyzed, it would take an average of 12 ½ years to save for a 20% down payment at the current annual savings rate of 5.6% reported by the St. Louis Federal Reserve.

o It would take an average of less than two years to save for a 3% down payment across all markets analyzed.

2. But mostly for borrowers without additional debt such as student loans and car payments.

o For borrowers without the additional debt of student loans and car payments, monthly house payments are still affordable in 92% of all county housing markets — even with just a 3% down payment.

o But for those borrowers with the average student loan debt and average car payment, putting just 3% down means monthly house payments are affordable in less than half (48%) of all county housing markets nationwide.

3. A larger down payment helps for borrowers with additional debt …

o With a down payment of 20%, more than three-fourths of county housing markets (78%) are affordable in terms of monthly house payments, even for borrowers with the average student loan debt and car payment.

4. But the affordability sweet spot comes for borrowers with no additional debt.

o 96% of county housing markets are affordable for borrowers with no additional debt and making a 20% down payment.

o But even with just a 3% down payment, 92% of housing markets are affordable for borrowers with no additional debt.

Bonus observation: Down payment assistance programs are a resource many buyers don't utilize

o There are more than 2,300 down payment and closing cost programs available across the country, with an estimated 60 to 80% of homes in most areas qualifying for one of these programs, according to data collected by Down Payment Resource.

o The average dollar amount available from down payment assistance programs is $19,720 nationwide, but can be between $50,000 and $100,000 in higher-cost areas.

“The narrative is that it's too hard to get a loan today and when first-time buyers believe that, they won't even begin their search. That hurts the overall housing market,” said Rob Chrane of Down Payment Resource. “Consumers for the most part have no idea that these programs exist, so they don't think to ask for them. Whatever your situation is, whatever you have for a down payment, you could be in a much better situation if you find out you are eligible for one of these programs.”

RealtyTrac's Methodology

For this analysis a county housing market is considered affordable if the minimum income needed to make monthly house payments — including mortgage, property taxes, property insurance, and private mortgage insurance in the case of the 3% down payment scenario — is less than the median household income for that county. The minimum income is calculated based on a maximum 43% debt-to-income ratio, including mortgage debt and other debt if applicable.

Median household incomes are estimated for 2014 based on U.S. Census bureau data for 2000 to 2012 and adjusted for current market conditions.

The average monthly student loan payment used was $321 based on the Project on Student Debt, which found college seniors who graduated in 2012 had an average student loan debt of $29,400.

The average car payment used was $471 based on data released by Experian Automotive for the fourth quarter of 2013.

The median home price for each market was the median sales price of residential property in September 2014 for disclosure states where the full sales price is required on the recorded sales deeds. In non-disclosure states where the full sales price is not required on the recorded sales deeds, the median list price from September 2104 was used. The non-disclosure states include Alaska, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, New Mexico, North Dakota, Texas, Utah, and Wyoming. Also List Median was used in Connecticut, Massachusetts, Rhode Island, Vermont, Delaware, and Hawaii.

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