It’s hard for first-time homebuyers to afford a home today. But for first-generation homebuyers—those without the support of intergenerational wealth built through homeownership—it’s much more difficult.

Young adults whose parents did not have access to homeownership are less likely to become homeowners themselves. A third of first-time homebuyers receive assistance from family or friends for a down payment, but this assistance is less likely when a borrower’s parents don’t own. The median renting family has only $10,400 in wealth, while the median homeowning family has 38 times that ($396,200). For households of color, who are less likely to have homeowning parents, assistance from family or friends is less common.

There is good news: catalyzed by a national program that was included in the Biden administration’s Build Back Better proposal, state and local leaders are creating new first-generation down payment assistance (DPA) programs that could help households without intergenerational wealth. In 2023 alone, Colorado, Maine (PDF), Minnesota, New Jersey, and Vermont allocated funding for first-generation DPA programs, joining Oregon (PDF), Rhode Island, and Masschussetts, who introduced the first such programs. In addition, six localities—5 counties in Minnesota (PDF); 16 counties in North Carolina; Ramsey County, Minnesota; Long Beach, California; Edina, Minnesota; and St. Louis Park, Minnesota—have implemented first-generation programs in the past two years.

As these programs spread, it is crucial that providers coalesce around a standard definition of “first-generation homebuyer,” which could help these households overcome the most significant obstacle to homeownership.

Without a clear or consistent definition, different first-generation DPA programs could leave out some buyers most in need of assistance. Targeting programs to first-time homebuyers whose parents are not recent homeowners, even if they have owned at some point in their lives, will maximize the likelihood that these new programs best serve those who need it and minimize the administrative burden on lenders and borrowers alike.

Defining “first-generation homebuyer”

The definitions of “first-generation homebuyer” determine programs’ effectiveness in serving low-wealth households whose prior generations have been barred from homeownership. Of the 12 state and local programs that have specified eligibility requirements, all require either that the borrower has never owned or hasn’t owned in the past three years. For the borrower’s parent’s ownership status, eligibility criteria vary across programs. Some require parents to have never owned a home, while others consider only the parent’s current ownership status.

We estimate there are 14.5 million renting households who are potential first-time homebuyers who might benefit from assistance. These households are in the prime homebuying age range—ages 25 to 54—and earn less than 150 percent of the area median income (AMI) but more than 40 percent of the AMI, as there are very few homebuyers below that income level. Because first-generation programs are designed to serve those with less wealth, they often allow higher income thresholds than other income-targeted programs (e.g., the proposed national DPA program includes up to 180 percent of the AMI in the highest cost markets). And, with rising interest rates and home prices, even moderate-income households have been priced out in many markets.

We previously identified different definitions of a “first-generation homebuyer” to target those who most need DPA and estimated the size of the potential market for each. Here, we focus on three definitions and look at the pool of potential participants using more recent data from the Panel Study of Income Dynamics. All align with the US Department of Housing and Urban Development’s (HUD’s) definition of a “first-time homebuyer”—one who has not owned in the past three years. 

Narrowing to just households who have parents who rent (definition A) reduces the pool significantly to 5.5 million households. Focusing on those with parents who haven’t owned in the past three years (definition B) further cuts the pool to 4.7 million households. Finally, definition C, which targets homebuyers whose parents have never owned or lost their home to foreclosure, shrinks the pool to 4.3 million households.

All three definitions target similar distributions of white, Black, and Latino households. Given that all net household growth through 2040 will be from households of color, it is critical that these households are supported in accessing homeownership, if homeownership is to continue to foster economic prosperity.

Which definition best targets those who need assistance?

An effective definition of “first-generation homebuyer” should sufficiently target low-wealth households while maximizing the number of potential recipients. It must also ensure that verifying eligibility is not operationally burdensome. These criteria pose a three-way trade-off: too wide a pool may not adequately target those who need assistance, too narrow a pool will unnecessarily exclude people who need the assistance, and complex eligibility requirements can dissuade lenders from offering the program and discourage borrowers from participating.

On the last point, accurately verifying that a borrower’s parents never owned a home or if they lost a home to foreclosure—as prescribed by definition C—can be challenging, especially if they are not in contact with their parents or their parents are no longer living. This verification also unnecessarily eliminates about 400,000 low-wealth homebuyers (and likely more homebuyers if using a lower income limit) who still need assistance. Our research shows that parental homeownership that was not sustained for the long term does not have significant effects on children’s homeownership likelihood.

Definition B, which targets only first-time homebuyers whose parents have not owned in the past three years, would best meet the goals of a first-generation DPA program and would be easier for borrowers and lenders to verify eligibility. Eligibility should also be extended to other groups of households without intergenerational wealth, particularly homebuyers formerly in the foster care system and with heir property, as identified in the national proposal.

Ultimately, coalescing around an optimal definition of “first-generation homebuyer” will pave the way for more state and local agencies to implement their own programs and help more people begin building intergenerational wealth.