Five Cities for First-Time Home Buyers - Article | Think Realty
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Top 5 Cities for First-Time Home Buyers

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If your target market includes first-time home buyers, you may want to consider investing in these metro areas, which tend to have down payments, financing options, and median home prices accessible to first-time buyers.

Certain things make a real estate market relatively more attractive to first-time homebuyers than another. For example, first-time buyers benefit from low down payments, which tend to be found in areas with affordable median home prices, multiple financing options, and good employment opportunities upon which to base their new household formation. For real estate investors, providing housing options to this population can be a profitable venture, since first-time buyers are, at present, more interested in entering the market than ever before thanks to rising interest rates and the public perception that opportunities to own a home will likely decline in the next year.

A new report from Lending Tree factored in average down payment amounts, shares of buyers using FHA mortgages (popular with first-time homeowners), and the share of homes in real estate markets across the country that are affordable to median-income earners in those markets to identify a subset of real estate markets particularly “friendly” to first-time buyers. The top five cities are:

  1. Little Rock, Arkansas
  2. Birmingham, Alabama
  3. Grand Rapids, Michigan
  4. Youngstown, Ohio
  5. Winston, North Carolina

Lending Tree analysts also noted that Denver, Colorado, New York City, and San Francisco topped the opposite end of the spectrum and are, by the company’s measure, the “most challenging cities for first-time homebuyers.”

In addition to considering home values, financing trends, and income rates in an area, Lending Tree considered how many borrowers in the areas “friendly” to first-time buyers have “less than prime credit (below 680),” because areas with lower credit ratings in general would be likely to have less competition for properties than areas with relatively high credit ratings. The company also factored in how FHA policies differed in different cities, since the agency allows much lower down payments in some areas than in others. “This measure of the FHA benefit tells us how much FHA borrowers truly saved on down payments,” the researchers wrote, adding, “Down payments [are] the biggest obstacles to homeownership.”

The group created a heat map of best cities for first-time homebuyers that showed the cities clustered in the Midwestern and Southern areas of the country. In top-ranked Little Rock, average down payments amounted to only about 12 percent of the total cost of the home (just under $25,000), and non-prime homebuyers had about a 50 percent chance of getting a mortgage. Birmingham buyers also only put about 12 percent down on their homes (around $27,000), and Grand Rapids had nearly two-thirds non-prime FHA borrowers in the home-buying population.

Investor Insight:
If your target market includes first-time home buyers, you may want to consider investing in these metro areas, which tend to have down payments, financing options, and median home prices accessible to first-time buyers.


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