First-time home buyers didn’t have it easy in 2025. Rising home prices combined with elevated mortgage rates pushed a record number of individuals and households to the sidelines. High rents, student loan debt and rising childcare costs added to the struggles of gaining a foothold into homeownership.
“They have strong demand for the American dream of homeownership, but they’re really just feeling left behind right now,” says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. “Homeownership is a way that many Americans build wealth … and unfortunately they’re just being pushed to the sidelines for a longer period of time and losing out on those wealth gains.”
That delayed entrance can be financially significant: Delaying homeownership until age 40—instead of 30—could mean losing out on about $150,000 in equity on a typical starter home, according to NAR.
Yet, first-time buyers made up 21% of the market last year—an all-time low—and their average age climbed to a record 40. Historically, first-time buyers account for about 40% of home sales.
So, could 2026 offer a brighter outlook and a smoother path to homeownership?
Mortgage rates are projected to ease toward 6%, potentially improving affordability for as many as 1.6 million renters, NAR research shows. At the same time, inventory is gradually increasing, expanding buyer options. Plus, sellers are showing greater willingness to negotiate. Together, these shifts could reopen the door—if only slightly—for more first-time buyers to enter the market.
Making the Finances Work
Saving for a down payment remains the biggest hurdle. First-time buyers today are putting 10% down—more than previous generations did when purchasing their first home and the highest in nearly 40 years. As a result, the buyers who do make it into the market tend to skew toward higher-income households.
“They’re also thinking about unique ways to enter into homeownership,” Lautz says, adding some strategies may include living with family to save on rent or pooling resources to buy with roommates to share down payment costs and future equity gains.
While personal savings remain the most common source for their down payment funds, about a quarter also tapped into other financial assets, such as 401(k)s, IRAs or stocks, and 22% received help from relatives or friends through a gift or loan to help buy a home, NAR’s research shows.
Talking to a lender may uncover additional options buyers may not realize exist. “There are a number of programs that, frankly, many clients and prospective homeowners don’t know about,” says Matt Vernon, the head of consumer lending at Bank of America. “That’s why it’s incredibly important to get educated on the mortgage process and talk to a lender early on.”
Alternative Mortgage Options
More borrowers are looking beyond the traditional 30-year fixed-rate mortgage. Adjustable-rate mortgages—which offer lower initial rates before later resetting—have gained popularity as buyers look to reduce monthly payments.
Vernon says about 10% of Bank of America’s current loan volume lately has come from ARMs, the highest share since 2023.
Shelley Jonietz, a lending manager at Chase Home Lending in Austin, Texas, says Chase also has seen an uptick in first-time buyers choosing ARMs. “An ARM can make sense for many first-time homebuyers, especially those who expect to stay in the home for only a short time,” she says. “It can give buyers the affordability boost needed to get into the housing market sooner.”
However, Jonietz cautions that ARMs are a short- to medium-term affordability tactic—not a long-term strategy. “Our role is to make sure they fully understand how this loan works, what future rate adjustments could look like, and whether the structure fits their long-term plans,” she adds.
Government-backed loans remain another pathway to homeownership, even as their use has declined alongside lower first-time buyer participation in the housing market the past year. Federal Housing Administration loans are known for more lenient credit requirements and lower down payment thresholds that have long helped first-time buyers qualify for a loan, often as low as 3.5%. Veterans Affairs and U.S. Department of Agriculture guaranteed loans may allow eligible borrowers to even put 0% down.
Read more: Navigating FHA Loan Requirements: Crafting Home Purchase Agreements With Ease
Down payment requirements vary based on loan type, lender and borrower profile. For example, Jonietz says that conventional loans can require as little as 3% down, FHA loans about 3.5%, VA loans sometimes 0%, and jumbo loans—for larger home purchases—often 10% or more.
“If you have a credit score that meets or exceeds your lender minimum, have a good payment history and a manageable debt-to-income ratio, then 3% to 3.5% is a good baseline for how much first-time buyers might need” to qualify for financing to buy a home, she says. “But buyers should keep in mind the trade-offs of low down payments, such as higher mortgage-insurance costs.”
Assistance Programs Also Can Help Bridge the Gap
Some lenders are expanding grant and assistance programs aimed at first-time buyers. Vernon says Bank of America offers a down payment grant of 3% of the purchase price, up to $10,000, as well as a homeownership grant of up to $7,500 that can be applied toward closing costs or an interest-rate buydown.
“The total potential support could reach $17,500, plus local programs, which can make a meaningful difference for a first-time buyer,” Vernon says. “It’s incredibly important … to understand the process and to do your research for local government or municipalities’ ability to apply grants and down payment assistance, and talk to a lending professional.”
Chase also offers several programs geared toward first-time buyers. Jonietz notes that Chase provides low-down-payment products including FHA loans, VA loans and the DreaMaker loan, which requires as little as 3% down and offers flexible credit guidelines. “These products can make homeownership more accessible, and help first-time buyers bridge the gap to purchase,” she says.
Also to help offset upfront costs, Chase offers tools such as the Homebuyer Assistance Finder and the Chase Homebuyer Grant—up to $5,000 in eligible neighborhoods—which can further reduce down-payment or closing cost expenses.
Tips for First-time Buyers in 2026
Jonietz offers several tips for buyers hoping to make a move this year:
- Maintain a strong credit score. Higher scores typically qualify for lower rates. For example, borrowers with credit scores of 760 or higher often secure the lowest rates, while those with scores that are 660 or lower may face significantly higher rates. In one example from Refi.com, a borrower with a 760 credit score qualified for a 6.24% rate, while a borrower with a score of 639 or lower qualified for a 7.83% rate—a 1.59 percentage-point difference, which could add thousands of dollars in interest over the life of a loan. (See the Consumer Handout: How to Improve Your Credit)
- Keep debt low. A low debt-to-income ratio improves your borrowing profile. So, borrowers may want to ensure as much debt as possible is paid off before applying for a loan, Jonietz says.
- Shop loan options. Compare fixed and adjustable-rate mortgages to see which is the best fit for your financial situation. Also, shopping around—such as gathering quotes from at least three lenders—can pay back. Borrowers save, on average, about $80,000 over the life of a 30-year loan or $222 a month just by comparison shopping, according to a LendingTree analysis.
- Consider a rate lock. While shopping for homes, rates can fluctuate. Jonietz points to programs like Chase’s Lock and Shop, which allow buyers to lock in a rate for up to 90 days while searching for a home and providing more certainty during the process over projected payments.
Builders Step Up on Affordability
Once the financing has worked out, home builders say they’re ready to attract more first-time home buyers. They’re responding to affordability pressures through lower cost homes and builder incentives. About 40% of builders cut prices on newly built homes at the end of last year, with reductions averaging around 5%. Roughly two-thirds of builders also offered additional incentives, like mortgage rate buydowns.
These buydowns—often offered by larger builders—temporarily lower a buyer’s mortgage rate for the first two or three years, an approach that can be especially meaningful for payment-sensitive first-time buyers, says Robert Dietz, chief economist at the National Association of Home Builders.
Plus, builders are ramping up construction of townhomes to the highest level in years, often viewed as a more affordable entry-level solution. Townhomes lately have accounted for about 18% of single-family construction, up from less than 10% a decade ago, according to NAHB.
“That’s a way to kind of get particularly younger households into the dream of American homeownership,” Dietz says. “Builders expect the townhome share to continue rising.”
Hopeful Outlook in 2026 for First-Time Home Buyers
First-time buyer participation will be a critical metric to watch in 2026, Lautz says. “Interest rates have been coming down lately … more inventory is entering the market … and slightly improved affordability conditions, even if just slightly, does mean an opportunity for first-time home buyers,” she says. “And I hope they are able to take advantage of that next year.”
