First-Time Homebuying in 2025: Overcoming Challenges to Buying Your First Home

If you're feeling behind on buying your first home, you're not alone. Research shows the median age for a first-time homebuyer is 38 years old in 2025, compared to 35 years in 2023. 

So why the delay? A combination of factors is making homeownership harder to attain, including high home prices, increased debt obligations, down payment requirements, high interest rates, and even confusion around the mortgage process. In this article, we break down the challenges first-time homebuyers face in today’s market and explore solutions to help overcome them.

Challenge #1: High Home Prices

Home prices have increased significantly over the past few years due to inflation and low home inventory. The median home sales price in the first quarter of 2025 is $416,900 compared to $329,000 in 2020. That’s a 27% increase!  As home prices increase, other elements that contribute to the total cost of home ownership also increase, including down payment requirements, monthly payments and interest, taxes, insurance, and realtor fees. This makes homebuying in 2025 more difficult for anyone, particularly first-time buyers without existing home equity to leverage.

Solutions to Consider:

• Use the Steppingstone Approach – Understand that your first home isn’t necessarily your dream home, or your forever home. Consider purchasing a smaller starter home then upgrade in the future as market conditions and/or your finances improve.
• Have Geographic Flexibility – Consider looking for homes outside of major metro areas that may have longer but manageable commutes in exchange for a lower purchase price. Also, consider new/emerging neighborhoods or homes in revitalized areas that could offer price benefits.
• Consider Alternative Properties – Look for properties that have been on the market longer, need cosmetic upgrades, or those that are in foreclosure or short sale. These    properties often come with a lower price tag. Likewise, consider starting out with a condo or townhouse that can provide a more affordable entry point into    homeownership.

Challenge #2: Increased Debt Burden

Today's first-time homebuyers face unprecedented debt levels that directly impact purchasing power. In 2025, Americans carry substantial obligations:

• Student loans: average balance of $38,375 with an average monthly payment of $536.
• Auto loans: average purchase prices of $41,720 for new/$25,328 for used with monthly payments of $745 and $521 respectively.
• Credit cards: average balances of $6,618 with an average of $181 in monthly payments.

These obligations significantly affect debt-to-income (DTI) ratio, a key financial metric that measures your ability to manage monthly payments and take on new debt. It is calculated by dividing your total monthly debt obligations by gross monthly income. Lenders typically prefer DTI ratios of 45% or lower.

For example: With a $4,000 monthly income and existing debts of $536 (student loan), $521 (auto loan), and $181 (credit card), your current DTI would be 31%. This leaves room for only a $560 monthly mortgage payment to maintain the 45% DTI threshold, which severely limits your homebuying options.

Solutions to Consider:

• Reduce Your Debt Burden – Pay down credit cards aggressively and consider consolidating multiple debts into a single lower-interest loan to reduce monthly obligations.
• Boost Your Income – Ask for a raise or document additional income sources like bonuses or consistent overtime that lenders could include in DTI calculations.
• Restructure Existing Loans – Refinance student loans to lower payments, trade expensive car loans for more affordable options, or explore income-driven repayment plans for federal student loans.
• Explore Flexible Mortgage Options – Consider FHA loans with higher DTI allowances (up to 50%), special first-time homebuyer programs, or adding a creditworthy co-borrower to strengthen your application.

Challenge #3: Saving for the Down Payment

Persistent inflation has dramatically transformed the first-time homebuying landscape. Essential costs like rental payments, insurance premiums, groceries, and daily necessities   remain elevated, making it increasingly hard to save for a rainy day, much less the traditional 20% down payment to purchase a home. For the median sale price of $416,900, this equates to $83,380.

Saving that much for a down payment is especially challenging for first-time homebuyers. Unlike repeat buyers who can leverage their existing equity, newcomers must build this financial foundation entirely from scratch while simultaneously affording costly living expenses.

Solutions to Consider:

• Explore Home Loan Options – Familiarize yourself with the different home loan options available for first-time homebuyers that may offer lower downpayment requirements such as FHA loans (3.5% down), conventional loans (starting at 3%), or VA/USDA programs (0% down for qualified applicants).
• Research Homebuyer Assistance Programs – Contact your mortgage loan officer about homebuyer assistance programs available for first-time homebuyers. Many states have housing finance agencies or local housing departments that offer substantial support through down payment grants (often $5,000-$20,000), forgivable loans that diminish over time, closing cost assistance, and tax credits that reduce your overall tax burden. Additionally, explore profession-based programs for educators, healthcare workers, first responders, and veterans that provide enhanced benefits.
• Make Saving Automatic – Open an account exclusively for your down payment savings. Then set up recurring transfers from each paycheck to build your balance consistently over time. Also, consider adding any windfalls such as gifts, bonuses, or tax returns to your down payment savings account.

Challenge #4: Interest Rates Remain Elevated

Despite improved stability in 2025 compared to previous years, interest rates remain significantly higher than the historically low levels seen in 2021. The average rate on a 30-year fixed mortgage in 2021 was just 3.15% compared to 6.90% in 2025. These elevated rates translate to substantially higher monthly payments, making homeownership notably more expensive than it was just a few years ago. Even so, there are steps you can take to help ensure you secure the lowest rate possible.

Solutions to Consider:

• Consider an Adjustable-Rate Mortgage – An adjustable-rate mortgage (ARM) is a loan with an interest rate that changes over time. The introductory rate associated with an ARM is typically lower that the current rate offered on a conventional loan and remains in effect for a fixed term which is typically 5, 7, or 10 years. A lower interest rate generally equates to a smaller, more affordable monthly payment.
• Research Mortgage Rate Lock and Float Down Options – Mortgage rates are constantly changing so it’s important to understand what your rate lock and float down options are when you apply. Securing a rate lock means that your interest rate will not change between the date the rate is offered and your lock expiration date if you meet certain criteria. This is especially important when interest rates are trending upward. A mortgage rate float down allows you to lock in your mortgage rate, and if rates fall during the underwriting process, you could still receive the lower rate.
• Compare Loans – It’s important to research and compare multiple loans available to your specific situation to help ensure you get the best rate possible.

Challenge #5: Understanding the Mortgage Process

For many first-time buyers, the mortgage process can be the most intimidating part of purchasing a home. It involves a wide range of unfamiliar topics such as types of mortgage loans, credit score requirements, interest rates, pre-approvals, appraisals, inspections, and closing costs. Each of these play a critical role in securing financing, yet there's often little formal guidance available to help buyers fully understand what’s involved, which could lead to confusion, delays, or even costly mistakes.

Solutions to Consider:

• Partner with a Trusted Lender – Not all mortgages are created equal so it’s important to research your lender to find your perfect mortgage match. Talk to them about items such as up-front or out-of-pocket expenses such as closing costs and taxes that could impact affordability. You may also want a lender who is local, so that you can meet with them if needed and have a person with whom you are connected throughout your home buying journey.  
• Complete Homebuyer Education – Familiarize yourself with the homebuying process by completing a homebuyer education program. Many programs, such as Fannie Mae’s HomeView, are complimentary and offer valuable certification to prepare you for purchasing your first home. Also, many lenders like FNBO provide advice and guidance that can help you through the homebuying process and beyond.

While you may feel behind when it comes to buying a home, remember that the “right time” for homeownership is unique to every individual and each financial situation. It’s important not to let statistical trends or social expectations get you down. And while market dynamics may have shifted in recent years, there are solutions that help make homeownership accessible.

If you would like information about purchasing your first home, an FNBO Mortgage Loan Officer is available to help.