In spite of rumors that millennials are waiting longer than GenX did to buy homes, the average age of first-time homebuyers has dropped by more than two years since 2000. Since first-time homebuyers comprise 46% of the market, understanding this demographic better can help you deliver greater value to your customer base.
It’s also important to note that more millennials now own more homes than any other generation, with nearly 40% cited as homeowners. With the rapid rise in millennial homebuyers, to understand millennials’ needs is to understand first-time homebuyers.
A study from the Federal Reserve Bank of New York offers the insight you need to fix and flip properties faster and earn more on your investment. The study’s revelations can change your views on today’s market—and help you prosper.
1. First-time homebuyers seek out lower-cost neighborhoods.
While purchasing real estate may be all about “location,” first-time homebuyers are willing to make a few sacrifices in this area. Not surprisingly, they tend to purchase homes in neighborhoods with an overall lower average income and less expensive houses, often outside of city centers.
According to the study, neighborhoods selected by first-time buyers have an average income of $9,000 less than neighborhoods where repeat buyers live. Their mortgages tend to be $60,000 less than repeat buyers, too. If you are seeking to revitalize a neighborhood with fix and flip properties, the first-time market is the one you want to target.
2. First-time homebuyers are willing to pay more.
In spite of choosing homes with lower selling prices in less expensive neighborhoods, 56% of first-time homebuyers made an offer greater than the asking price—even if it was more than they were comfortable paying.
This could be a result of shopper frustration in a seller’s market; first-time homebuyers put in 3.8 offers before having one accepted, while more experienced homebuyers put in an average of 2.5 bids before closing.
3. First-time homebuyers have lower credit scores than repeat buyers.
Having a diverse credit profile, which may include a mortgage, factors into your overall credit score. Therefore, it’s not surprising that first-time homebuyers have lower credit scores than repeat buyers—a 37-point difference according to the study.
First-time home buyers may be eligible for government-backed FHA loans, which may require as little as 3.4% down and a credit score of just 580. You can also discuss a rent-to-own arrangement, giving your tenants a chance to build equity in their single-family rental as their credit score rises.
New programs, such as Experian Boost and UltraFICO, may help consumers with slim credit profiles or poor credit get approved for loans by providing alternate methods to evaluate their creditworthiness. You may find the perfect buyer who does not know that these tools are available; when they decide to move to a step-up home or even have an opportunity to refer a friend, they will remember the help you offered.
Understanding the profile of today’s first-time homebuyers can help you flip homes faster, especially in areas with steep profit margins due to rising home values and revitalization.
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