Mortgage rates have jumped over three percentage points this year, recently hitting new highs above 6.0%. And for new homebuyers, this has dramatically increased the cost of buying a home. Though homebuyers may refinance over the course of their mortgage (thus securing a lower rate), most experts say interest rates are unlikely to drop in 2023.
Homebuyers in large cities are in an especially tough spot given relatively high home values and in this study, we examined how much the first year of homeownership costs. Specifically, we compared 20 of the largest U.S. cities across five metrics: down payment on the median-valued home, average closing costs, monthly mortgage payment, property taxes and homeowners insurance. For more information on our data and how we put it together, read our Data and Methodology section below.
This is SmartAsset’s second annual study on how much the first year of homeownership costs in large cities. Check out the 2021 edition here.
Key Findings
- In California, Southern cities are more expensive than Northern ones. Four out of five cities where first-year homeownership costs are least affordable are in the Golden State. However, the two Southern California cities win out relative to the two Northern ones. The first year of homeownership is less than $264,000 in Los Angeles and San Diego, but it exceeds $391,900 in both San Francisco and San Jose.
- Across all cities, first-year homeownership costs have dramatically increased. In Indianapolis, Indiana – the most affordable city to buy a home, both last year and this year – average first year costs increased by more than 26%, from $50,014 to $63,244. The same is true for San Francisco, California – the least affordable city in our study. Between the two years, the average first-year homeownership cost swelled by about 17%, from $364,900 to $426,997.
- The average monthly mortgage payment exceeds $1,000 in all 20 cities. Last year, the average monthly mortgage payment was less than $1,000 in nine of the 20 cities we compared. However, this year, the monthly mortgage payment exceeds that figure in even the most affordable city. Assuming a 20% down payment on the median-valued Indianapolis home ($220,500) and a 30-year fixed-rate mortgage at 6.0%, the typical new homeowner would owe close to $1,100 every month towards their home loan. At the other end of the spectrum, the average monthly mortgage payment in San Francisco is about $7,600.
Where First-Year Homeownership Costs Are Least Affordable
1. San Francisco, CA
San Francisco, California is the least affordable city in our study. We found that the average new homebuyer in San Francisco will need almost $427,000 for their first year alone. Broken down, a 20% down payment on the median-valued home is $316,439 and average closing costs are $7,938. Additionally, a new homebuyer will pay $91,066 towards their mortgage in the first year along with $9,780 on property taxes and $1,744 on homeowners insurance.
2. San Jose, CA
San Jose, California is the second-least affordable large city for homeownership in our study, with the first year of homeownership costing an estimated $391,935. Homebuyers in San Jose pay an average of $296,602 in upfront costs, as well as $95,333 in annual recurring costs.
3. Los Angeles, CA
In Los Angeles, California, homebuyers will pay an average of $263,999 in their first year. The median home value in Los Angeles is $965,995, which ranks third-highest across our study. With that home value, buyers will spend an average of about $6,900 on property taxes and roughly $1,800 on homeowners insurance annually.
4. San Diego, CA
With an average first-year homeownership cost of $263,089, San Diego, California is slightly more affordable than Los Angeles. The median home value in San Diego is just under $1 million, at $961,879. This means that a 20% down payment will cost you $192,376 and the monthly mortgage payment assuming a 30-year, fixed-rate mortgage at 6.0% is $4,614.
5. Seattle, WA
The 2022 average home value in Seattle, Washington is about $952,900. This means that a 20% down payment amounts to almost $190,600. With the addition of closing costs, the first year’s mortgage payment, property taxes and homeowners insurance, we estimate that the first year of homeownership in the Emerald City is $261,495.
Where First-Year Homeownership Costs Are Most Affordable
1. Indianapolis, IN
Like last year, Indianapolis, Indiana is the most affordable large city for the first year of homeownership. The median home price in Indiana’s capital city is $220,511, while average closing costs are $3,009. Columbus also has the lower average property taxes ($2,227) and third-lowest average homeowners insurance ($1,214) of the 20 cities that we studied.
2. Columbus, OH
The median home value in Columbus, Ohio is about $236,300, the third-lowest of all 20 cities in our study (behind Indianapolis and Philadelphia). Columbus slightly edges out Philadelphia, though when it comes to the total first year cost, it has significantly lower average closing costs. Average closing costs, excluding escrow and prepaid expenses, are also second-lowest in our study, at just $3,541.
3. Philadelphia, PA
With an average first-year homeownership cost of $71,590, Philadelphia, Pennsylvania is slightly more expensive than Columbus. Homebuyers will need $55,016 in cash to cover upfront costs, which include average closing costs of $8,404 – surprisingly, the second-highest across our study.
4. Houston, TX
The median home value in 2022 in Houston, Texas is about $261,500. This means that the average new homebuyer who puts down 20% will need almost $56,400 (including average closing costs). The first year of homeownership also includes a year’s worth of the mortgage payment, property taxes and homeowners insurance, meaning that a buyer will pay about $79,100 in the first year.
5. Jacksonville, FL
Jacksonville, Florida is the fifth-most affordable large city to purchase a home. Homebuyers will spend $85,631 in their first full year of homeownership, including $64,062 in upfront costs and $21,569 in annual recurring costs. Jacksonville has the sixth-lowest median home value ($294,378) and the fourth-lowest average annual property taxes ($2,649).
Data and Methodology
To find the most affordable, populous cities for the first year of homeownership, SmartAsset examined data for 20 of the largest cities in the country with available data (Washington, D.C. was the only city missing this data). We considered the following metrics, grouped according to upfront costs and annual recurring costs:
Upfront Costs
- 20% down payment. This is on the median-valued home in 2022, according to data from Zillow.
- Average closing costs. Data comes from SmartAsset’s closing costs calculator. It excludes escrow and pre-paid expenses such as homeowners insurance.
Annual Recurring Costs
- Mortgage payment. We assumed a 30-year fixed-rate mortgage with an interest rate of 6.0%. This aligns with recent rates as reported by Freddie Mac.
- Average property taxes. Data comes from SmartAsset’s property taxes calculator.
- Homeowners insurance. Data comes from Value Penguin, is dated August 2022 and measured at the state level.
First, we calculated upfront costs and annual recurring costs in each city. Summing those together, we found the estimated first year cost of owning a home in each city. Cities were then ranked from least to most affordable.
Home Buying Tips
- Shop around for mortgage rates. Consider both local and national lenders to ensure you’re uncovering the best rates, and make sure to put that rate in perspective. Use SmartAsset’s free mortgage calculator to determine how today’s mortgage rates will affect your monthly payments.
- Work with an expert. Buying a home is a significant investment and it may be worth working with a professional to see how much you can afford and how a purchase may affect your financial planning. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Questions about our study? Contact us at press@smartasset.com
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