In a lending landscape where borrowers are hard to come by, it’s important to focus your lead generation efforts where they’ll have the greatest impact. Currently, the most promising subset of prospective borrowers are first-time homebuyers – they makeup 35% to 48% of all new purchases and 8% to 12% of all refinances.
Below, we’ll explore the key aspects of first-time homebuyers’ journeys, including the “who, what, where, why, and how” behind their decisions. After that, we’ll offer three actionable steps for capturing their mortgage business and cultivating them into loyal borrowers over time.
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Who Are Today’s First-Time Homebuyers?
First-time homebuyers are getting older. The average age of a first-time homebuyer in 2024 has reached an all-time high of 38 years old. Rising home prices are largely responsible for this trend. According to the Department of Housing and Urban Development, a single-family home that cost $84,300 in 1985 now exceeds $240,000.
Since home prices are outpacing income growth, saving up a sufficient down payment is more challenging than ever before. Thus, it’s no surprise that affordability challenges are first-time homebuyers’ top hurdle.
Although it is taking first-time homebuyers longer to enter the market, they continue to be primarily composed of younger generations. According to Experian’s research, the current breakdown of first-time homebuyers by generation is as follows:
- 17% – Gen Z (12 to 27 years old)
- 52% – Millennials (28 to 43 years old)
- 21% – Gen X (44 to 59 years old)
- 10% – Baby Boomers (60 to 78 years old)
As you can see, roughly 70% of first-time homebuyers are Gen Zs or Millennials. These two generations also make up around 40% of repeat homebuyers, highlighting their value for lenders’ future borrower retention campaigns.
What Types of Homes Are First-Time Homebuyers Buying?
While affordability is a top concern for first-time homebuyers, the majority (86.5%) are opting for single-family homes, as opposed to townhouses (4%) or condominiums (9%). Single-family homes resonate with first-time homebuyers’ desire to:
- Establish long-term stability
- Have space to start a family
- Renovate their home without restrictions
While few first-time homebuyers are skimping on their preferred property type, many (76.4%) are buying older homes built before the 2000s. These homes are often more affordable than their newly constructed counterparts.
With that being said, new construction has recently seen a stark rise in first-time homebuyer activity. First-time homebuyers’ new construction purchases rose 56% from 2019 to 2023, while repeat buyers experienced a more modest increase of 38%. This shift may be driven by the use of builder credits and rate buydowns, which make newer homes more affordable for first-time buyers.
Where Are First-Time Homebuyers Buying Their Homes?
Now that you know the average ages of first-time homebuyers, you may be wondering where they’re choosing to purchase their starter homes. The highest concentration of first-time homebuyers can be found in:
- Highly populated states – States with large populations, such as California, Texas, Florida, and New York, naturally have a large portion of first-time homebuyers. Over one-third of first-time homebuyers purchased homes in these states.
- Affordable states – A sizable portion of first-time homebuyers are also choosing to lay down roots in more affordable locations, including western and mid-western states. Utah, Colorado, Nebraska, Minnesota, Iowa, and Indiana are some popular examples.
Based on these geographic patterns, you may want to focus on lending in regions with lower costs of living. You can also highlight other strategies for making the home-buying process more affordable, such as leveraging down payment assistance programs, rate buydowns, or government-backed loan options.
Why Are First-Time Homebuyers Purchasing Homes?
Despite the economic barriers, first-time homebuyers cite several reasons for pursuing their home purchases. These reasons include:
- Stability and settling down – Many first-time homebuyers see purchasing a home as a step toward establishing long-term roots, particularly as they move into more stable phases of their personal lives.
- The desire to make somewhere their own – First-time buyers are driven by a desire to personalize their space, create a sense of ownership, and invest in something that reflects their identity.
- Appreciation and rising home values – Nearly 80% of first-time buyers believe that real estate is a sound investment and want the opportunity to build equity over time.
By emphasizing these benefits of homeownership in your marketing campaigns, you’ll be more likely to resonate with first-time homebuyers and win over their business.
How Are First-Time Homebuyers Purchasing Homes?
First-time homebuyers are the most likely segment to purchase their home using a mortgage – 91% of first-time homebuyers finance their home purchases, compared to just 69% of repeat buyers. This is just one more reason why first-time homebuyers are an excellent target market for mortgage lenders.
Credit Scores
While many aspiring homebuyers want to obtain mortgages, not all of them have the credit profiles to qualify. The majority of first-time homebuyers have prime (58%) or super-prime (27%) credit scores. However, a notable portion (13%) have near-prime credit scores.
Income
Many aspiring homeowners assume they need lavish incomes to afford their first home. However, over one-third of first-time homebuyers have annual household incomes below $90,000. The income distribution of first-time homebuyers is as follows:
- 13% – $15,000 to $60,000
- 21% – $61,000 to $90,000
- 16% – $91,000 to $120,000
- 13% – $121,000 to $150,000
- 11% – $151,000 to $180,000
- 27% – $180,000+
Based on these metrics, it’s important to remind aspiring homeowners that it’s possible to get in the market with modest means. You can do so by creating educational content on programs designed for lower-income earners.
For example, around 11% of first-time homebuyers meet the FHFA’s low-to-moderate income requirements. These buyers may qualify for HomeReady or Home Possible mortgages, which offer lower down payment options, reduced mortgage insurance costs, and more flexible credit requirements.
How to Attract and Retain More Business From First-Time Homebuyers
Now that you understand the various dimensions impacting first-time homebuyers, you may be wondering how you can attract and retain their business. Here are three effective strategies:
#1 Facilitate a Seamless Online Lending Experience
While Baby Boomers and Gen X still prefer in-person interactions, Millennials and Gen X homebuyers are digital nomads. They’re used to attending video conferences, submitting online applications, and signing documents using e-signatures. They also expect high levels of digital proficiency from their service providers.
To capture these first-time mortgage candidates’ business, you need to ensure your digital processes are user-friendly and efficient, starting with your prequalification application. Offering online prequalification is an excellent way to attract leads who like to do their research first. You can set a stellar first impression with these applicants by providing instant responses.
Cascade Prequal enables you to do so with ease. All you have to do is set your eligibility thresholds and integrate this automated prequalification tool with your customer-facing website. After that, Cascade Prequal will match applicants with their estimated loan options, all while shielding them from trigger leads and protecting their credit scores.
#2 Provided Personalized Credit Score Improvement Suggestions
Along with digitized processes and instant gratification, Millennials and Gen Zs are accustomed to receiving personalized recommendations from the brands they engage with. Amazon, Netflix, and various social media platforms already customize their algorithms to create highly individualized experiences.
You can adopt a similar strategy by providing personalized credit score improvement suggestions to your non-qualifying applicants using ScoreNavigator. Its Mortgage Action Plan (MAP) provides personalized insights and precise credit score suggestions to help your applicants enhance their credit profiles. Meanwhile, its innovative simulators can help you identify:
- Which credit decisions will help or hurt your applicants’ credit scores.
- Their fastest path to credit score improvement.
- The best time for your applicants to make their credit payments.
- The best time for you to re-pull your applicants’ credit reports.
By offering this tailored support, you can satisfy first-time homebuyers’ desire for personalization and play a pivotal role in their home-buying journeys.
#3 Keep First-Time Homebuyers Coming Back Through Targeted Outreach
Many mortgage lenders leverage third-party marketing lists to try and obtain more business. Unfortunately, Experian’s research shows that up to 80% of “mortgage leads” aren’t actively searching for mortgage products, rendering them ineffective.
Even with high-quality marketing lists, retaining borrowers typically costs five to seven times less than acquiring new ones. Thus, rather than wasting your money on subpar customer acquisition campaigns, you can increase your conversion rate and ROI by targeting your existing borrowers instead.
Cascade Alerts is an automated lead generation and borrower retention tool that can transform your first-time homebuyers into loyal, long-term borrowers. Here’s how it works:
- After uploading your borrower database to Cascade Alerts and setting your eligibility requirements, Cascade Alerts will scan your borrower’s credit activity continuously and look for signs of new mortgage applications.
- As soon as an in-the-market lead is identified, Cascade Alerts will make sure he or she meets your current eligibility criteria. Cascade Alerts will then compile and share daily lead lists with you so you can reach out to your past borrowers promptly.
- After reviewing each borrower’s details in your LOS, you can reach out and highlight personalized loan products, whether they appear to be in the market for a new purchase loan, refinance, HELOC, or home equity loan.
Compared to other lead generation tools, Cascade Alerts is very affordable. Better yet, it has no firm offer of credit requirement.
Capitalize on First-Time Homebuyer Lending Opportunities With Certified Credit
Today’s first-time homebuyers have unique challenges, but they’re also incredibly resilient. With the right education and support, these applicants have the potential to bring valuable business your way, both now and in the future.
If you want to appeal to first-time homebuyers, you need to keep their challenges, concerns, and motivations in mind as you craft your marketing campaigns. You can enhance this process by leveraging the right tools. Along with Cascade Prequal, ScoreNavigator, and Cascade Alerts, we offer the following solutions at Certified Credit:
- Affordable credit reports
- Automated undisclosed debt monitoring
- Automated verification of income and employment
- Automated credit supplements
- Fraud and risk mitigation support
- Property and valuation tools
- Flood zone determinations
- Underwriting compliance
- Settlement services
Ready to start attracting and retaining more first-time homebuyers? Schedule a credit consultation with our team today.
Sources:
Experian. Unlocking growth in mortgage lending: Capitalizing on the untapped potential of first-time homebuyers.
CNBC. Average age of first-time homebuyers is 38, an all-time high. Here’s what that says about the real estate market.
Yahoo Finance. How Much House Could $500K Buy in the 80s vs. Today.
https://finance.yahoo.com/news/much-house-could-500k-buy-160031978.html
MPA. ‘The biggest barrier’: First time buyers struggle with new challenge to ownership.
National Association of Realtors. Highlights From the Profile of Home Buyers and Sellers.
Forbes. Customer Retention Versus Customer Acquisition.
