Buying A First Home With Second Home Buyers In The Market

First-Time Home Buyers are typically aware of their spending potential when they plan to purchase a home. The Federal Savings Bank finds their expectations include certain amenities, but nothing too extravagant, especially as most buyers in this group need a mortgage to buy a home. It's also no secret that home buyers who are purchasing a second home in addition to their primary residency tend to be older, have larger incomes on average and often prefer to live in warmer climates. A recent Housing Insights report from Fannie Mae focused on second home buyers, providing details on trends of consumers in this group.

While a recent April 7th HousingWire report may have dismissed this report as unsurprising information, it may provide some helpful details to first-time buyers who are searching in markets sought by those typically in the second-home buyer pool.

Considering the generation gap when choosing neighborhoods 

There are many factors that home buyers have in mind when choosing a location for their new home purchase, including nearby schools, entertainment and access to transit or main roads. First-time buyers who are also looking for a community populated by people around their age may decide to forgo areas where second home buyers frequent.

Florida often serves as a joke when describing where older populations like to live, and Fannie Mae's report noted that California and Arizona are also popular. In fact, 34 percent of all second home mortgages since 1998 were in these states.

The median age of second home owners is 47 years old, which may not bother some first-time buyers. However, those searching for a younger community may look elsewhere.

Factoring second home buyers into bidding wars 

Since the start of the housing recovery, first-time buyers have seen fierce competition from veteran buyers and institutional investors alike, especially with the latter typically having the advantage of all-cash offers. The target markets for second home buyers may be equally as challenging to compete in, as these consumers tend to have more wealth.

"The recovery in financial markets has allowed many second home buyers, who are typically older and more likely to own financial assets, to sell some of their assets to buy second homes or use dividend payments from these assets to cover second home mortgage expenses," the report said.

Fannie reported that between 2009 and 2013, the median household income of second home buyers was $90,660 compared to $74,580 for primary home buyers. Additionally, 70 percent of second home purchases required less than 80 percent financing. Conversely, 60 percent of primary home buyers required 80 percent or more financing. With these factors in mind, it may be harder to beat offers from second home buyers in warmer markets, possibly calling for additional tactics, such as writing a personal cover letter to sellers.

First-time buyers not to be discouraged 

Although second home buyers have more experience and capital, The Federal Savings Bank thinks there's still a chance that first-time buyers can land a wonderful property in sunny Florida. It may take a low rate mortgage to finance such a home, but buyers can look forward to owning a second home of their own down the road.