First Time Home Buyers – Who Are They and How Will They Buy

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While the role of first-time home borrowers hasn’t changed much over time—they are generally vacating rental housing to move into starter homes—the characteristics of these new home borrowers has definitely evolved. Today’s first-time home buyers are older, less likely to be married, and purchasing more expensive homes than they have in the past.

What does this mean for mortgage lenders when these new buyers are ready to purchase a home? By understanding what drives their decisions, you can be more prepared to help this group of borrowers when they come looking for a mortgage loan, and you will be better able to connect with them and meet their unique needs.

Characteristics of today’s first-time home buyer1:

  • Typically older: 32.5 years old, compared to 29.6 in 1980-84
  • Longer rental history: 6 years, compared to 5 in 1980-84
  • Less likely to be married :40%, compared to 52% in 1985-89
  • Income has remained relatively flat over the preceding years: averaging at $54,340
  • Buying more expensive homes than in previous decades: nearly 2.6 times their income versus nearly 1.9 in 1985-89

Delaying their home purchase

The median age of 32.5 for today’s first-time home buyer might mean they’ve paid off any student loans or are close to it, making it possible for them to save even more for their home—or to afford a better home or neighborhood than they originally thought. They could be well-established on their career path with a reliable income and a higher credit score. This financial stability makes them less of a risk for larger loans and better equipped to handle a mortgage in general.

Renting longer

After renting for an average of six years, today’s first-time home buyer might not realize that there are more costs associated with buying a home than just what’s on the price tag. Helping your borrowers understand how their loan repayment will work, and being transparent about added costs, such as closing fees, can go a long way in helping them prepare for their first mortgage.

Being upfront and providing a complete financial picture will give borrowers confidence in you as their lender, which goes a long way in securing repeat and referral business.

Buying on their own

Many first-time home buyers are single—generally speaking, fewer people are getting married today and are waiting longer to do it. Single borrowers will typically be taking out smaller loans for smaller houses, and they’re also less likely to co-borrow, unless they’re planning to co-borrow with a parent or housemate. If they choose to co-borrow, you’ll want to clearly explain how it’s different from getting a mortgage on their own.

Experiencing less wage growth

If home values increase but incomes stay flat, first-time home buyers will be more likely to wait for the home that the want at a price they can afford. With programs like HomeReady mortgage being catered to the extended income household, borrowers don’t necessarily have to be economical about their housing choice anymore, just more patient. One way to help your borrowers is to elaborate on these different products and help them find the right fit that makes the house they’re wanting affordable; with a mortgage they can afford. Boosting your borrower’s confidence by elaborating on the best loan product for them, with a detailed repayment structure, can help them feel at ease with their decision and set them up for mortgage success.

Buying more expensive homes

Historically, a first-time home buyer purchased an “entry-level” or “starter” home, which often meant an older home with only one or two bedrooms. Today, first-time home buyers are purchasing more expensive homes—perhaps due to lack of less expensive inventory or because they saved more money for their down payment. This could be due to the change in lending standards that arose from the housing crisis. When many of these borrowers were first entering the market, standards had tightened, and many believed that only those with the best credit could qualify for a loan. In any case, you can help these clients by presenting the different loan products that can cover their larger mortgage, such as adjustable rate mortgages or loans which offer a longer repayment period, to quell their concerns of these more stringent standards.

Summary

Landing any client can be a challenge, but when the characteristics of a particular type of borrower change significantly, you have to adapt to their needs or you don’t get their business. The factors driving the decisions of today’s first-time home buyer also affect their borrowing needs. While outstanding customer service is a pillar of relationship building, knowing what’s behind a client’s thought process—and responding thoughtfully—is the foundation.

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