What are the costs of first-year homeownership?

Study collects key data from America's 20 largest cities

What are the costs of first-year homeownership?

The three most expensive cities in the US in terms of first-year homeownership are all in California - but New York has the highest closing costs in the country, according to a new study by fintech company, SmartAsset.

The purpose of the study was to calculate the cost of homeownership in the first year after a home was purchased, as the first year is often the most expensive, due to having to pay closing costs and the all-important, budget-busting down payment.

SmartAsset looked at data from 20 of the largest cities in the country based on six metrics - median home value, a 20% down payment, average closing costs (except for escrow and pre-paid expenses), monthly mortgage payment, property taxes and homeowner insurance.

Only Washington DC was missing from the data. The mortgage payment was also based on a 30-year fixed-rate mortgage with an interest rate of 3%.

Read more: Revealed - 2021’s best small US cities to live in

The study found that San Francisco is unsurprisingly “the nation’s least affordable large city for first-year homeownership” followed by San Jose - the Silicon Valley tech hub - and Los Angeles in third, whose average closing costs are at least $1,000 lower than in the other two.

It said homebuyers in San Francisco “need a whopping $364,900 for their first year, thanks in large part to a median home value of $1,439,752”. It also revealed that the average property tax bill in San Francisco is the third highest, costing $9,214.

SmartAsset also found that first-year homeownership costs differ wildly. While in Indiana, homebuyers can expect to spend about $50,000 in their first year, that is still more than seven times cheaper than in San Francisco, California, where total costs can exceed $364,500.

Seattle, the fourth most expensive city in the study, is “slightly more affordable than Los Angeles” the report said, with homebuyers needing $172,623 “in cash” to cover upfront costs, including average closing costs of $5,930.

Buying a home in the Big Apple – the most populous city in the US – can cost $203,993 in the first year of homeownership, but it also boasts a median home value of $710,200, making homes in New York more affordable than on the West Coast.

Read more: Where are the country’s least affordable housing markets?

The only downside, the report added, is that closing costs in NY are by far the highest - “more than double what they are anywhere else, thanks in large part to a citywide transfer tax” that pushed average closing costs to more than $18,000.

At the other end of the scale, Indianapolis, in Indiana, was listed as the most affordable and the lowest of all 20 cities in the study, with a median home value of only $184,474.

Average closing costs, excluding escrow and prepaid expenses, are also lower than in any other city at just $2,852.

“The average property tax bill in Indianapolis is just $1,900 per year, about a third of the average for all 20 cities. All of this amounts to the first year of homeownership costing just $50,014,” the report said.

The second most affordable big city for the first year of homeownership was Columbus, Ohio, where homebuyers can expect to pay $57,791 in their first year of homeownership.

Both the median home price in Ohio’s capital city ($203,796) and the average closing costs ($3,391) are the second lowest in the country.

SmartAsset also noted that San Antonio, in Texas, the seventh most populous city in the country and the third most affordable big city in the study, with a median value of a home of $217,326, benefits from a stock of affordable homes.

Philadelphia, in Pennsylvania, ranks as the fourth most affordable city on the East Coast, with a median home price of $62,990, including $51,347 in upfront costs, the lowest average homeowners’ insurance ($640), and the third-lowest average property taxes ($2,162).

The study pointed out that the federal Department of Housing and Urban Development considered homebuyers who spent more than 30% of their income as “housing cost burdened”.

It advised buyers to seek financial advice on how much to spend on a home purchase, noting that experts recommended a monthly mortgage payment no higher than 28% of a person’s gross monthly income, or as little as 25% of their take home pay.