First Time Home Buyers In New Home

A Look At Entering The Home Buying Market

Molly Grace5-minute read
January 06, 2022

Key Takeaways:

  • Saving for a down payment was the most stressful part of the homebuying process for recent first-time home buyers.
  • About 72% of those who bought homes within the past 2 years received help from family with their down payment.
  • Prospective buyers age 30 and under are more debt averse than older buyers.

Americans are buying homes later in life than previous generations. According to figures published by the Federal Reserve, the average age of home buyers rose to an all-time high of 55 years old in 2020, and only 31% of those were first-time buyers, the lowest share since 1987. Despite being the largest generation in the United States, millennials have consistently tracked behind Gen Xers in terms of their share of U.S. net worth. Less wealth means the younger generation is less able to participate in the home buying market, and stressors stack up as prospective buyers age into their later home buying years.

Why are home buyers waiting longer and longer? Rocket HomesSM surveyed 1,278 prospective and recent home buyers to gain insights into the factors that are stopping people from becoming first-time homeowners and some solutions to overcoming homebuying hesitations.

Prospective Buyers And What’s Stopping Them

Many Americans are hesitant to buy a home due to financial reasons. Among survey respondents, 59% of prospective buyers were delaying saving for a down payment on their first home. More than half were also waiting for prices to drop, while 43% were hesitating because they wanted to avoid going into debt.

What's Delaying Prospective Home Buyers

Debt avoidance was a key difference between generations of potential home buyers, with 47% of millennials listing “wanting to avoid debt” as a reason for delaying their home purchase, compared to only 37% of Gen Xers. Respondents in neither generation were particularly concerned about giving up mobility or taking on homeowner responsibilities.

According to survey results, low credit scores and current debts have also led to first-time homeowner hesitation, more so for younger Americans than those in older generations.

Impact of Debt and Low Credit On First-Time Homebuyers Chart

Prospective buyers responded differently according to their price range, too. People looking for homes in the less expensive half of the spectrum (under $300,000) were more affected by medical expenses than those looking for slightly more expensive homes: 49% of frugal home shoppers cited medical expenses as a major roadblock.

Credit card debt also affected these two groups differently. A majority (51%) of those looking for cheaper homes reported it as a major hindrance to making a purchase, compared to 40% of those looking for more expensive homes. Some forms of debt are unavoidable, but for prospective home buyers looking for cheaper homes, limiting credit card debt is crucial.

Down Payment Expectations And Savings

A down payment is a percentage of the home’s total price, sometimes around 20% (although often less). Conventional mortgages can have a down payment as low as 3% while an FHA mortgage (best for those who have low or average credit) can start at 3.5% down. How much someone saves for a down payment depends on a few different factors, but the general rule is the more a buyer brings to the table, the lower their monthly mortgage payment.

Average Expected Down Payment Graph

Most prospective home buyers, especially those looking at lower price ranges, had realistic expectations about how much they’d need to save for a down payment. Many people understood the 20% benchmark, and more than 1 in 4 already had enough saved up. About three-quarters of prospective buyers have at least half the amount they need for their down payment saved, so many people are well on their way to homeownership.

Distribution of Down Payment Savings Bar Graph

Home Buying Stress: Prospective Vs. Recent Buyers

Buying a home can be stressful, especially for first-time buyers who are new to the process. A comparison of stressors between Americans who recently purchased a home and those who are hoping to do so soon exposed a few key differences between the realities and expectations of these two groups.

Comparing Home Purchasing Stressors Chart

Recent home buyers were far less concerned about waiting for prices to drop than prospective first-time home buyers. This suggests that the current real estate market is one of the leading causes of hesitation for current first-time home buyers. Prospective buyers were much less worried about location, home type, homeowner responsibilities and loss of mobility than they were about financial issues.

Cautious behavior from young prospective homebuyers belies an economic anxiety that is common among a generation that has suffered through wage stagnation, increasing student loan debt and the economic turmoil that has accompanied the COVID-19 pandemic. Young prospective buyers, age 30 and under, were more debt averse than the average homebuyer: 52% of younger Americans were delaying buying a house to avoid taking on debt. This percentage was almost 10 percentage points higher than the average buyer.

Home Buying Assistance

A large majority of recent home buyers received help from their family so they could afford to make a down payment on their home. Almost half of recent buyers also continue to rely on their family to help with monthly mortgage payments. Many people need financial support to realize their dream of owning a home, but not everyone has the luxury of extended family in a position to help.

Percentages of Homebuyers that received assistance and continue to receive assistance from family members.

Today, younger generations own a significantly smaller slice of the nation’s wealth than their predecessors did at the same age. With nearly three-quarters of recent home buyers receiving financial assistance from their families, the housing market appears to be becoming increasingly hostile toward those whose families cannot help shoulder the financial burden of purchasing a home.

That being said, alternative forms of support do exist: Down payment assistance programs help first-time home buyers afford a place to call their own. Government agencies and private organizations offer loans and grants to qualified applicants. Matched savings programs, where an organization matches a prospective buyer’s down payment savings, are another way to alleviate financial stress.

How To Financially Prepare To Buy A Home

Buying a home can seem like an overwhelming task, but there are steps prospective buyers can take to lessen stressors and increase their financial standing ahead of taking the plunge. One of the best ways to prepare for homeownership is to live on a budget and look for ways to spend less and save more.

Half of recent home buyers reported cutting recreational spending in order to save for a down payment. Forty percent also scaled back on contributing to retirement savings so that they could prioritize a real estate purchase in the near future.

Buying a home is a big investment that could potentially pay off very well in the long run. Budgeting smartly, improving low credit scores and finding the best financing options can help more Americans realize their dream of becoming a homeowner.

Methodology And Limitations

Data used in this analysis came from a survey of 1,278 adults located in the U.S. who’ve seriously considered buying a home for the first time within the past 2 years, including those who’d purchased a home in that time. Of respondents, 455 had purchased a home and 823 hadn’t. The mean age of respondents was 36.6 years. Samples for relevant demographic groups are as follows:

Generations:

  • Millennials: 69%
  • Generation X: 23%
  • Other generations: 8%

Primary desired price range of home:

  • Under $100,000: 11%
  • $100,000 to $299,000: 36%
  • $300,000 to $499,000: 30%
  • $500,000 to $899,000: 21%
  • $900,000 or higher: 2%

Respondents were gathered through the Amazon Mechanical Turk survey platform. To help ensure data quality, all respondents were required to identify and correctly answer an attention-check question in order to complete the survey. This study has a 3% margin of error on a 95% confidence interval.

Please note that survey data can be subject to certain limitations related to self-reporting. These limitations include telescoping, exaggeration and selective memory.

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    Molly Grace

    Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.