real estate

We pick the toughest and easiest states for first-time homebuyers

For millennials striving to succeed at "adulting," buying a home is a common goal. But millennials now hitting prime years for that first home purchase may have to stick to smaller, interior states to find a hospitable homebuying climate, according to a new Bankrate analysis.

Couple hugging on couch in living room | Oliver Rossi/Getty Images

We found California, New York, Texas, Colorado, Oregon and Massachusetts -- states with large metro areas that are attracting young millennials -- are among the 10 worst states for first-time homebuyers.

The best-performing states in our ranking are mostly Western and Midwestern states with varying degrees of urbanization. Iowa, Utah and Minnesota make up the top three.

RankStateTotal scoreHousing affordabilityJob market for young adultsHousing market tightnessCredit availabilityHomeownership among millennials
Rank: 1State: IowaTotal score: 40.32Housing affordability score: 10.00Job market for young adults score: 7.55Housing market tightness score: 5.60Credit availability score: 7.53Homeownership among millennials score: 9.64
Rank: 2State: UtahTotal score: 40.16Housing affordability score: 6.55Job market for young adults score: 9.33Housing market tightness score: 5.88Credit availability score: 8.85Homeownership among millennials score: 9.55
Rank: 3State: MinnesotaTotal score: 39.60Housing affordability score: 8.66Job market for young adults score: 7.85Housing market tightness score: 3.75Credit availability score: 9.34Homeownership among millennials score: 10.00
Rank: 4State: KansasTotal score: 38.11Housing affordability score: 8.18Job market for young adults score: 7.67Housing market tightness score: 7.02Credit availability score: 8.33Homeownership among millennials score: 6.91
Rank: 5State: MissouriTotal score: 38.10Housing affordability score: 8.71Job market for young adults score: 6.01Housing market tightness score: 8.26Credit availability score: 7.67Homeownership among millennials score: 7.45
Rank: 6State: North DakotaTotal score: 37.66Housing affordability score: 8.39Job market for young adults score: 10.00Housing market tightness score: 4.14Credit availability score: 8.31Homeownership among millennials score: 6.82
Rank: 7State: South DakotaTotal score: 37.50Housing affordability score: 8.21Job market for young adults score: 9.48Housing market tightness score: 2.31Credit availability score: 8.73Homeownership among millennials score: 8.77
Rank: 8State: WyomingTotal score: 36.91Housing affordability score: 7.94Job market for young adults score: 7.70Housing market tightness score: 4.59Credit availability score: 8.12Homeownership among millennials score: 8.57
Rank: 9State: VermontTotal score: 36.34Housing affordability score: 8.51Job market for young adults score: 7.82Housing market tightness score: 8.55Credit availability score: 6.00Homeownership among millennials score: 5.46
Rank: 10State: NebraskaTotal score: 36.33Housing affordability score: 9.68Job market for young adults score: 8.71Housing market tightness score: 1.65Credit availability score: 8.95Homeownership among millennials score: 7.33
Rank: 11State: IdahoTotal score: 36.32Housing affordability score: 6.78Job market for young adults score: 6.26Housing market tightness score: 7.90Credit availability score: 7.73Homeownership among millennials score: 7.66
Rank: 12State: IndianaTotal score: 35.92Housing affordability score: 9.23Job market for young adults score: 4.29Housing market tightness score: 6.65Credit availability score: 7.56Homeownership among millennials score: 8.19
Rank: 13State: MontanaTotal score: 35.51Housing affordability score: 5.86Job market for young adults score: 6.66Housing market tightness score: 9.11Credit availability score: 8.19Homeownership among millennials score: 5.69
Rank: 14State: OklahomaTotal score: 35.18Housing affordability score: 9.41Job market for young adults score: 6.07Housing market tightness score: 7.07Credit availability score: 5.60Homeownership among millennials score: 7.02
Rank: 15State: AlaskaTotal score: 34.70Housing affordability score: 7.22Job market for young adults score: 3.59Housing market tightness score: 8.12Credit availability score: 10.00Homeownership among millennials score: 5.77
Rank: 16State: New HampshireTotal score: 34.68Housing affordability score: 8.42Job market for young adults score: 8.65Housing market tightness score: 4.36Credit availability score: 6.11Homeownership among millennials score: 7.14
Rank: 17State: MichiganTotal score: 34.61Housing affordability score: 9.65Job market for young adults score: 3.13Housing market tightness score: 7.24Credit availability score: 6.19Homeownership among millennials score: 8.40
Rank: 18State: WisconsinTotal score: 34.51Housing affordability score: 9.73Job market for young adults score: 4.85Housing market tightness score: 6.47Credit availability score: 6.79Homeownership among millennials score: 6.66
Rank: 19State: OhioTotal score: 34.10Housing affordability score: 9.95Job market for young adults score: 5.31Housing market tightness score: 5.25Credit availability score: 7.32Homeownership among millennials score: 6.27
Rank: 20State: PennsylvaniaTotal score: 34.05Housing affordability score: 9.28Job market for young adults score: 4.02Housing market tightness score: 6.04Credit availability score: 7.48Homeownership among millennials score: 7.23
Rank: 21State: IllinoisTotal score: 33.78Housing affordability score: 9.08Job market for young adults score: 4.23Housing market tightness score: 7.23Credit availability score: 6.91Homeownership among millennials score: 6.33
Rank: 22State: DelawareTotal score: 33.52Housing affordability score: 7.06Job market for young adults score: 4.48Housing market tightness score: 6.92Credit availability score: 7.33Homeownership among millennials score: 7.73
Rank: 23State: ArkansasTotal score: 33.31Housing affordability score: 8.64Job market for young adults score: 5.46Housing market tightness score: 8.81Credit availability score: 3.89Homeownership among millennials score: 6.51
Rank: 24State: ArizonaTotal score: 33.25Housing affordability score: 6.52Job market for young adults score: 4.85Housing market tightness score: 9.31Credit availability score: 7.98Homeownership among millennials score: 4.59
Rank: 25State: MarylandTotal score: 32.52Housing affordability score: 7.96Job market for young adults score: 5.12Housing market tightness score: 5.08Credit availability score: 7.98Homeownership among millennials score: 6.37
Rank: 26State: VirginiaTotal score: 32.04Housing affordability score: 7.12Job market for young adults score: 6.13Housing market tightness score: 5.06Credit availability score: 8.30Homeownership among millennials score: 5.43
Rank: 27State: ConnecticutTotal score: 31.88Housing affordability score: 8.39Job market for young adults score: 2.48Housing market tightness score: 8.30Credit availability score: 7.47Homeownership among millennials score: 5.24
Rank: 28State: MaineTotal score: 31.80Housing affordability score: 7.32Job market for young adults score: 3.96Housing market tightness score: 7.74Credit availability score: 5.10Homeownership among millennials score: 7.68
Rank: 29State: TennesseeTotal score: 30.85Housing affordability score: 8.16Job market for young adults score: 3.44Housing market tightness score: 7.02Credit availability score: 5.87Homeownership among millennials score: 6.37
Rank: 30State: North CarolinaTotal score: 29.42Housing affordability score: 7.19Job market for young adults score: 3.68Housing market tightness score: 7.04Credit availability score: 6.36Homeownership among millennials score: 5.14
Rank: 31State: New JerseyTotal score: 29.11Housing affordability score: 7.52Job market for young adults score: 4.11Housing market tightness score: 6.24Credit availability score: 6.82Homeownership among millennials score: 4.42
Rank: 32State: AlabamaTotal score: 29.06Housing affordability score: 8.57Job market for young adults score: 0.00Housing market tightness score: 9.84Credit availability score: 3.43Homeownership among millennials score: 7.22
Rank: 33State: GeorgiaTotal score: 28.81Housing affordability score: 7.81Job market for young adults score: 2.30Housing market tightness score: 7.59Credit availability score: 6.30Homeownership among millennials score: 4.81
Rank: 34State: KentuckyTotal score: 28.52Housing affordability score: 9.20Job market for young adults score: 3.65Housing market tightness score: 5.38Credit availability score: 2.75Homeownership among millennials score: 7.54
Rank: 35State: New MexicoTotal score: 28.28Housing affordability score: 6.57Job market for young adults score: 1.81Housing market tightness score: 10.00Credit availability score: 3.25Homeownership among millennials score: 6.64
Rank: 36State: WashingtonTotal score: 27.66Housing affordability score: 5.55Job market for young adults score: 5.34Housing market tightness score: 5.00Credit availability score: 7.91Homeownership among millennials score: 3.85
Rank: 37State: FloridaTotal score: 27.42Housing affordability score: 7.00Job market for young adults score: 4.14Housing market tightness score: 8.79Credit availability score: 3.73Homeownership among millennials score: 3.76
Rank: 38State: NevadaTotal score: 27.02Housing affordability score: 6.11Job market for young adults score: 2.67Housing market tightness score: 7.21Credit availability score: 7.28Homeownership among millennials score: 3.76
Rank: 39State: South CarolinaTotal score: 26.55Housing affordability score: 7.34Job market for young adults score: 2.73Housing market tightness score: 6.47Credit availability score: 3.28Homeownership among millennials score: 6.73
Rank: 40State: West VirginiaTotal score: 26.29Housing affordability score: 9.86Job market for young adults score: 1.35Housing market tightness score: 6.67Credit availability score: 0.00Homeownership among millennials score: 8.42
Rank: 41State: MassachusettsTotal score: 26.06Housing affordability score: 5.99Job market for young adults score: 6.17Housing market tightness score: 1.96Credit availability score: 8.65Homeownership among millennials score: 3.30
Rank: 42State: OregonTotal score: 25.76Housing affordability score: 4.56Job market for young adults score: 5.28Housing market tightness score: 4.83Credit availability score: 8.55Homeownership among millennials score: 2.55
Rank: 43State: ColoradoTotal score: 25.71Housing affordability score: 5.00Job market for young adults score: 6.93Housing market tightness score: 0.00Credit availability score: 8.47Homeownership among millennials score: 5.31
Rank: 44State: TexasTotal score: 25.33Housing affordability score: 6.92Job market for young adults score: 5.95Housing market tightness score: 1.66Credit availability score: 6.18Homeownership among millennials score: 4.62
Rank: 45State: Rhode IslandTotal score: 25.18Housing affordability score: 7.00Job market for young adults score: 1.84Housing market tightness score: 5.22Credit availability score: 7.94Homeownership among millennials score: 3.17
Rank: 46State: MississippiTotal score: 24.56Housing affordability score: 5.89Job market for young adults score: 2.18Housing market tightness score: 8.19Credit availability score: 1.13Homeownership among millennials score: 7.17
Rank: 47State: LouisianaTotal score: 23.96Housing affordability score: 8.11Job market for young adults score: 3.28Housing market tightness score: 3.18Credit availability score: 2.69Homeownership among millennials score: 6.70
Rank: 48State: New YorkTotal score: 23.12Housing affordability score: 6.88Job market for young adults score: 4.29Housing market tightness score: 4.78Credit availability score: 5.84Homeownership among millennials score: 1.33
Rank: 49State: HawaiiTotal score: 20.16Housing affordability score: 0.00Job market for young adults score: 7.33Housing market tightness score: 4.59Credit availability score: 8.24Homeownership among millennials score: 0.00
Rank: 50State: CaliforniaTotal score: 13.67Housing affordability score: 1.25Job market for young adults score: 2.76Housing market tightness score: 1.25Credit availability score: 7.23Homeownership among millennials score: 1.17

How we ranked the states

To measure how well different states accommodate first-time buyers, we focused on five major criteria:

  1. Housing affordability
  2. The job market for young adults
  3. Housing market tightness
  4. Credit availability
  5. Homeownership among the under-35 crowd

Source: Bankrate

RATE SEARCH: Ready to buy a home of your own? Get prequalified for a mortgage today.

Affordability tricky in popular states

Affordability is a huge issue for first-time buyers, especially in states with large and growing metro areas, says Rolf Pendall, co-director of the Metropolitan Housing and Communities Policy Center at the Urban Institute.

"When you have a state like California where the housing prices are really high and the rental housing is also really expensive, unless you have access to wealth from some source that's not your job, it's going to be really hard for you to amass enough of a down payment, and also the kind of credit that you need to get into the housing market," Pendall says.

Would-be homebuyers in expensive markets are caught in a bind. The only way to get away from surging rents is to save up a down payment, but the rising rents keep them from saving.

To identify markets where affordability obstacles are highest, we used data on median home sale prices from CoreLogic and the National Association of Realtors, combined with U.S. Census five-year income estimates for households ages 25 to 44.

What we found was stunning: Principal and interest payments in the least affordable states consumed more than a third of household income, versus just 13 percent in the most affordable states.

  • Top three states for affordability: Iowa, Ohio, West Virginia
  • Bottom three: Hawaii, California, Oregon

Loans hard to come by in some states

Qualifying for a mortgage can be tough for millennials with relatively thin credit files compared to their older peers and no home equity to roll into down payments.

To find out how access to home financing varies across states, we turned to data from millions of mortgage applications available under the Home Mortgage Disclosure Act. Specifically, we zeroed in on rejected applications.

Again, the differences between the states could be stark. In Alaska, we found fewer than 5 percent of applications were turned down. In West Virginia, denials were three times as high.

One way to fight back: Start working on financing early in the home buying process and think local, says Tom Springer, a professor of real estate at Clemson University.

"Build a relationship with a physical, on-the-ground lender," he says.

  • Top three states for credit availability: Alaska, Minnesota, Nebraska.
  • Bottom three: West Virginia, Mississippi, Louisiana.

RATE SEARCH: Find the best deal on a mortgage today.

Steady work a must

Successfully buying (and holding onto) a home is highly dependent on having steady work, so we incorporated 2016 government employment data into our ranking. We gave states with low unemployment rates for workers in the prime first-time homebuyer demographic of 25-34 the highest marks.

  • Top three states for 25-34 employment: North Dakota, South Dakota, Utah.
  • Bottom three: Alabama, West Virginia, New Mexico.

Tight markets aren't your friend

Tight markets, where the pool of available homes is small and sellers typically get multiple offers, tend to work against young first-time buyers trying to break in.

Lawrence Yun, chief economist at the National Association of Realtors, cites Seattle, Denver and Portland, Oregon, as markets with an "acute inventory shortage."

In many cases, "there's a bidding war among the buyers, certainly putting millennials at a disadvantage," he says.

We used two measures derived from Census data to assess how tight the housing market is in each state. The first is the percentage of vacant homes for sale or rent.

For the second, we took the spread between the growth rate in housing stock between 2010 and 2015 and combined it with the percentage change in the number of households between 2010 and 2015. The result indicates whether homebuilders in a state are keeping up with demand for new housing.

"The places that have the highest rents and the highest prices tend also to be the places where because of constraints of geography and regulations, builders can't respond to rising prices by adding a lot more housing," says Pendall.

  • Three states with least tight housing markets: Alaska, Vermont, New Mexico.
  • Three tightest: Colorado, California, Texas.

Millennials frozen out of popular markets

Ultimately the best measure of which states provide a welcoming environment for first-time buyers may be looking at how many younger households have actually managed to do it.

Using Census data, we calculated the percentage of households under 35 living in owner-occupied housing. Again, there was a large range, with under a quarter of young households in Hawaii, California and New York living in homes they own, compared to more than 40 percent that do in Minnesota, Iowa and six other states.

"It is the youngest adults who are taking the biggest hit downward in ownership rate," Yun says, in part because of the fallout from the Great Recession.

  • Top three states for millennial homeowners: Minnesota, Iowa, Utah.
  • Bottom three: Hawaii, California, New York.

COOL TOOL: Use Bankrate's mortgage calculator to find out how much house you can afford.

Better times ahead?

The news isn't all bad for first-time homebuyers. Mortgage rates are still very low by historical standards, allowing millennials to afford pricier homes than previous generations of first-time buyers.

Plus, first-time buyers have access to Federal Housing Administration (FHA) loans that allow them to make a down payment of as little as 3.5 percent of the purchase price.  

Yun says young professionals who aspire to homeownership should seriously consider looking for work in smaller "second-tier" markets that offer amenities like walkability and restaurants at a much lower cost.

If that's not an option, would-be first-time buyers always have the option of staying on the sidelines -- for now.

"Hopefully with an improving economy, their wage rates begin to rise, and with homebuilders able to build more homes, hopefully that will contain some of the price growth," Yun says, "giving a better chance for millennials in the future."


Life's Financial Journey: Buying your first home Eager to have a living space where you can proudly say, "I own this"? Find out what every first-time homebuyer needs to know.
          Connect with us

Connect with us