A 5 percent down payment on the typical starter home in Greater Boston – priced at $490,000 according to Redfin – is now equivalent to nearly one-quarter the median household income. iStock illustration

While home prices continue to rise, aspiring homeowners are finding that more pressure is being put on their pocketbooks, especially first-time buyers.

According to a report from brokerage Zoocasa, the annual median income in Greater Boston has grown 22.4 percent since 2018. In the same period, the average monthly mortgage payment has grown 27.5 percent. In the Worcester area, the median income has grown 19.7 percent while the average monthly mortgage payment has grown 82.9 percent.

A Zillow report at the beginning of the year also highlighted how mortgages are growing relative to income. According to a report in February, homebuyers in Greater Boston would need to earn an income of $205,253 to afford a mortgage on the typical home. This is a 136 percent increase from 2020 when an income of $86,967 would be needed to afford a mortgage.

“We went from a place of extreme unaffordability to heightened on unaffordability right now,” said Gerry Bourgeois, senior advisor to the chief executive officer and COO at Lamacchia Realty. “However, people have to live somewhere. They can sacrifice elsewhere and are still purchasing homes. That’s what we’ve been seeing. At some point there’s going to be an affordability limit, so to speak.”

Average mortgage payments from the Zoocasa report for median-priced single-family homes were calculated using the NerdWallet Mortgage Payment Calculator. The calculations assume a 20 percent down payment, with a 30-year fixed-rate mortgage at 4.55 percent in 2018 and 6.39 percent in 2023. Median single-family home prices were sourced from each region’s individual real estate board. Median annual income data was sourced from the U.S. Bureau of Labor Statistics.

Compared to similar markets such as San Francisco and Seattle, Boston isn’t in such a bad spot. San Francisco’s median income increased 33.2 percent while mortgage payments increased 51.8 percent. In Seattle, the median income jumped 28.3 percent while the average mortgage payment saw a 71.7 percent increase.

Part of the reason that price jumps in Boston haven’t hit a wall can be credited to the resilient and diverse economy, bankers and brokers interviewed for this story said.

“We have incredible healthcare. We have incredible higher learning. We have incredible biotech. We have incredible sciences that has at least locally allowed many, many people to continue to create that competition for housing. I think the bigger dynamic, though, is the fact that it is such a resilient economy. It’s such a diverse economy around here that that we don’t see the slowdowns,” Salem Five Senior Vice President and director of mortgage sales Brian Mahoney said.

Image by Sam Minton | Banker & Tradesman Staff

First-Time Buyers in Tight Spot

Calculations by Zillow show just how hard it is for many new homebuyers to afford to take part in the housing market these days.

According to Zillow, the average mortgage payment on the typical Greater Boston home bought with a 5 percent down payment made up 61.8 percent of a homebuyer’s monthly income in July.

But as of July 2024, a mortgage falling under the same parameters with a 20 percent down payment only made up 49.7 percent of a homebuyer’s income.

And according to calculations by researchers at Redfin, the median sale price for Greater Boston starter homes – identified as those in the bottom 35 percent of the market by sale price – sat at $490,000 in July. A 5 percent down payment on that home would equal $24,500, or 23 percent of the region’s median household income.

With such a large portion of their income required to afford a 5 percent down payment, low- and moderate-income buyers must make substantial sacrifices elsewhere in their life to come up with the down payment.

When working with buyers facing affordability issues, Mahoney said it is crucial for loan officers to have knowledge of various programs to aid homebuyers. Salem Five for instance, participates in the Federal Home Loan Bank of Boston’s Equity Builder program. The Equity Builder Program offers grants to help first-time buyers earning up to 80 percent of the area median income with down-payment, closing cost and home rehabilitation assistance, and homebuyer education and counseling.

“What a lot of people don’t know is that almost every community has some sort of a grant program,” he said. “They don’t want Bill Gates rolling into town and getting a grant to purchase a home but it’s usually income restricted, so [they’re] super focused on low- to moderate-income home buyers.”

Providers of two of the state’s most popular mortgage products for first-time buyers are seeing increases in buyers using down payment assistance.

The percentage of those using down payment assistance with their ONE Mortgage has increased steadily, according to the Massachusetts Housing Partnership. In 2019, just 17 percent of homebuyers with a ONE Mortgage utilized down payment assistance while in 2024, 60 percent of homebuyers with a ONE Mortgage utilized down payment assistance.

Since 2019, MassHousing has issued 10,761 mortgages to first-time homebuyers. Of those borrowers, 55 percent utilized down payment assistance. Usage of down payment assistance has also increased, with 62 percent of first-time homebuyers utilizing down payment assistance in 2024, up from 52 percent in 2019.

Sam Minton

DPA Stigma Waning

Historically, there’s been some stigma against buyers using down payment assistance among sellers and their agents, said Partnership for Financial Equity Executive Director Tom Callahan.

“I’ve been told about these conversations that happen between a seller’s broker and a seller saying, ‘Well, we got somebody putting 15 [percent], 20 percent down and then we’ve got this other person who’s relying on putting 3 percent down, relying on this government-backed mortgage program through MHP or MassHousing,’ and the seller gets immediately nervous,” he said. “Well, if both are pre-approved, there should be no difference to the seller in terms of the ability of one buyer versus another to get to closing.”

Callahan noted that as these programs continue to become more well-established, more sellers and real estate agents are realizing that there is no need to worry about a buyer having less money down. His nonprofit has also worked to try and educate buy-side and sell-side real estate agents about the realities of down payment assistance.

“Most of these programs have very low denial rates and very high approval rates in their programs. In some cases, because the borrower has been educated through a nonprofit housing counseling agency, they maybe have a higher degree of likelihood of getting approved for that mortgage,” he said.