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First-time buyers in the nation’s 50 largest metros are spending a median ratio of 3.3 times their gross annual household income on their first home, according to the American Enterprise Institute’s Center on Housing Markets. According to Realtors and other analysts, this number has pushed higher over the course of the past several decades, eliminating the once-common “rule of thumb” that you can afford a home that costs about two times your gross annual household income.

At the local level, this ratio ranges from an “affordably modest” 2.3 in Pittsburgh to a “hyper expensive” 5.0 in San Jose, Calif. The top ten least-affordable markets in this study had median buyer incomes that were only 51% higher than those in the ten most affordable areas.

How do first-timers manage to do it? One crucial element is that there are relatively generous financing options compared with previous decades: Fannie Mae and Freddie Mac offer 3-percent-down options and have begun permitting applicants’ debt-to-income ratios (DTIs) to go as high as 50 percent. FHA offers first-timers not only low minimum down payments (3.5 percent) but also exceptionally sympathetic treatment on credit issues and the mortgage industry’s highest DTIs — in excess of 50 percent.

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