Housing News

First-Time Buyers Face Challenges, but There Are Many Ways to Achieve Homeownership

Fewer first-time homebuyers have been able to become first-time homeowners in today’s challenging—and pricey—housing market. However, that doesn't mean that they should give up.

Only 24% of buyers were first-time homebuyers in the last year, according to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers report. That’s well below the historical norm of about 40% of all buyers and is a record low since NAR began tracking this data in 1981.

Today's buyers are facing significant obstacles that delay or altogether deter their entry. These roadblocks include high home prices, elevated mortgage rates, and a lack of homes for sale in much of the nation. However, there are money-saving strategies they may be able to deploy that could help them to snag lower home prices and mortgage rates.

“The report highlights how difficult this housing market has been for first-time buyers who are trying to save for downpayment in an inflationary economy, had student debt payments resume and perhaps experienced a rise in rent,” said Jessica Lautz, NAR Deputy Chief Economist and Vice President of Research. 

“If they successfully saved the funds, they then stepped into a housing market with extremely limited affordable inventory, high interest rates and increasing home prices,” said Lautz.

(The NAR report is based on a survey of nearly 5,400 homebuyers who purchased a primary home between July 2023 and June 2024.)

First-time buyers are getting older and have higher incomes

The typical first-time buyer is now older at 38 years old. That’s up from previous decades when first-time buyers tended to be in their late twenties or early thirties.

But with buying a home so expensive nowadays, many buyers need more time to get established professionally with higher incomes and save up for a down payment.

Higher mortgage rates have made it difficult for new buyers to afford the monthly payments required to purchase a home. In the fall of 2023, mortgage rates hit an average 7.79% in the week ending Oct. 26, according to Freddie Mac data.

“Mortgage rates were at historic lows just a few years ago and now they’re much higher,” said Brad Pauly, a real estate broker at Pauly Presley Real Estate in Austin, TX. “That’s made mortgages expensive.”

Meanwhile, home prices remained high at a median $435,000, according to the NAR report. The typical home purchased by a first-time buyer was about 1,500 square feet with three or more bedrooms and at least two full bathrooms.

With buying a home becoming more expensive, the typical first-time buyer earned a median $97,000. That’s up by $26,000 in the past two years alone.

However, even with this income boost, however, many find home prices and interest rates daunting.

Another hurdle facing first-time buyers is the struggle to save for a down payment.

Down payments are a challenge for first-time homebuyers

The typical down payment for first-time buyers is now 9%, the highest seen since 1997, according to the NAR report. As many repeat buyers and investors come to the market with cash offers or large down payments, newcomers may find themselves at a disadvantage.

Rising living costs, including high rents, have also made it difficult for first-time buyers to set aside enough money to meet these expectations. About 32% reported that saving for a down payment is their greatest challenge.

Debt from student loans and other obligations further complicate the situation, affecting credit scores and mortgage approval terms. Lower credit scores may lead to higher mortgage rates, making monthly payments even less affordable.

How first-time buyers can become homeowners

There are programs that first-time homebuyers can apply for to help them come up with a down payment and ways they may be able to temporarily lower their mortgage rates.

First-time buyer assistance programs can make a significant difference. Grants, low-interest loans, and down payment assistance can ease the financial strain by potentially providing buyers with funds they can use for their down payments and closing costs.

Some lenders offer loans with lower initial interest rates or down payment programs, which encourage buyers to save by providing additional funds toward their goal.

Buyers may also want to consider a U.S. Department of Veterans Affairs (VA) loan or a U.S. Department of Agriculture (USDA) loan which don’t require down payments. Federal Housing Administration (FHA) loans may require as little as 3.5% down.

Buyers may also want to negotiate with sellers to get a lower price or receive help with closing costs, said Pauly.

They may also want to consider a mortgage rate buydown. This is when buyers pay their lender to temporarily lower their rates for the first few years of their mortgage.

“The idea is rates will be relatively lower in a couple of years and then you can refinance,” said Pauly.

Nearly two-thirds of first-time buyers, 64%, bought a home because they wanted to become homeowners, according to the report.