Despite conditions in the housing market, there continues to be an increase in first time homebuyer numbers. Here’s a look at first-time homebuyers today, and resources to help as you embark on purchasing your first home.
- In 2021, 34 percent of homebuyers were first-time homebuyers, an increase from 31 percent in 2020.
- The typical age of a first-time homebuyer is 33 years old.
- Sixty-five percent of first-time homebuyers are driven primarily by a desire to own their own home.
- Since 2018, the average down payment for first-time homebuyers has consistently ranged between 6 percent and 7 percent.
- Twenty-nine percent of first-time homebuyers cite “saving for a down payment” as the most challenging part of the homebuying process.
- In 2021, 28 percent of first-time homebuyers applied a gift or loan from family or friends toward their down payment.
- Of homebuyers age 23 to 31 (younger millennials), 49 percent report student loan debt hinders their ability to save for a home. The same is true for 44 percent of homebuyers age 32 to 41 (older millennials).
- Of homebuyers age 23 to 41 who made sacrifices to purchase a home, the most common was to cut spending on “luxury or non-essential items.”
- Of homebuyers age 23 to 41, the most common reason for a mortgage denial was an insufficient debt-to-income (DTI) ratio, followed by a low credit score.
- Just 11 percent of homebuyers age 23 to 31 and another 11 percent age 32 to 41 contacted a bank or mortgage lender as the first step in the homebuying process. More often, the first step for these groups was to search for listings online.
- Sixty-six percent of first-time homebuyers are white, 14 percent are Hispanic, 11 percent are Asian American and 9 percent are Black.
- Only 8 percent of homebuyers age 23 to 31 and another 8 percent age 32 to 41 report “getting a mortgage” as the most difficult step in the homebuying process.
- Among unmarried homebuyers (9 percent of all homebuyers), 21 percent are younger millennials.
- Fifty-one percent of older millennials have at least one minor child living with them.
Sources: The Shifting Profile of First-Time Homebuyers: 1997-2017, Joint Center for Housing Studies, Harvard University; 2022 Home Buyers and Sellers Generational Trends Report and 2021 Profile of Home Buyers and Sellers, National Association of Realtors
Getting a mortgage as a first-time homebuyer
As a first-time homebuyer, begin by estimating how much home you can afford, taking into account your income and other debt, as well as the size of your down payment and monthly mortgage payment. Although many mortgage lenders allow you to borrow at a higher ratio, it’s best to spend no more than 28 percent of your income on housing.
Before you apply for a mortgage, review your credit reports and scores. Your credit score has a significant impact on the mortgage interest rate you’ll receive, so if your score needs work, now is the time to improve it. This includes steps like paying down existing debt and avoiding new loans. If you find an error on any of your reports, contact the credit bureau as soon as possible to remedy it.
Once your score is in shape and you have an idea of what you can afford, start shopping for lenders. You might choose to begin with your bank, but don’t discount other types of lenders like credit unions or online lenders. In addition to finding the lowest possible rate, it’s equally important to compare fees and your overall experience.
First-time homebuyer resources
There are many first-time homebuyer loan and assistance programs that can help reduce the cost of buying a home:
- Down payment assistance – Many down payment assistance programs offer a second mortgage to help with the down payment and closing costs in addition to the first mortgage to buy the home. This second mortgage might be a low-interest, deferred-payment or forgivable loan.
- First-time homebuyer grant – If you’re a low- or moderate-income borrower, you might be eligible for a first-time buyer grant (free money). To qualify, you typically need to meet income and purchase price limits as well as credit score requirements.
- Mortgage interest deduction – Depending on whether it’s best to itemize or take the standard deduction, you might benefit from the mortgage interest deduction on your annual tax return.
First-time homebuyer FAQ
Buying a home is the biggest purchase most people will ever make, and it can take some time to prepare to apply for a mortgage. Review these tips for first-time homebuyers 12 months out all the way up to the purchase.
For the best chance at qualifying for a mortgage, aim for a credit score of at least 620. (A score of 740 or higher nets the most competitive rates, however.) Likewise, a higher down payment helps you get a favorable rate and terms, although many loan programs allow for a down payment of just 3 percent. Similarly, most lenders look for a DTI ratio of no higher than 43 percent, but there are programs with more flexibility, as well.
There are two mortgage programs that don’t require money down: VA mortgages and USDA mortgages. If you’re a qualified active-duty service member, veteran or surviving spouse, you can obtain a VA loan for 100 percent of the home’s purchase price. If you’re a low- or moderate-income borrower buying a home in a rural area, you can obtain a USDA loan with no money down.
For most first-time homebuyer loan programs, you’re considered a first-time homebuyer as long as you haven’t owned a home in the past three years.
The proposed first-time homebuyer tax credit under the First-Time Homebuyer Act of 2021 would provide low- to moderate-income first-time homebuyers with a tax credit of up to 10 percent of their home’s purchase price, with a maximum of $15,000. As of August 2022, the bill has not yet been made law.