First-time homebuyer qualifications

SDI Productions/Getty Images: Illustration by Issiah Davis/Bankrate

Eligible first-time homebuyers have access to a variety of mortgage and down payment assistance programs. Here’s how to know whether you qualify.

Who qualifies as a first-time homebuyer?

When determining eligibility for a first-time buyer loan or other forms of help, the term “first-time homebuyer” can be misleading. Under many programs, “first-time homebuyer” refers to those who have never owned a home before or haven’t owned a home in the last three years.

This distinction can make all the difference to buyers who were homeowners several years ago and are back in the market today.

“There’s a lot of misperception about what it takes to qualify for these programs,” says Alanna McCargo, former president of Ginnie Mae. “People are confused by income levels; they think they made too much, or they don’t realize that they could have owned a home before to qualify.”

First-time homebuyer vs. first-generation buyer

A first-generation homebuyer is someone whose parents or legal guardians never owned a home during the homebuyer’s lifetime. A first-time homebuyer is someone who either hasn’t owned a home or hasn’t in the past three years and doesn’t factor in generational homeownership. First-generation homebuyer programs are generally designed to target low-income households.

When are you considered a first-time homebuyer again?

You’re considered a first-time homebuyer if any of these situations apply to you:

• You haven’t owned a home in the past three years;
• You are a stay-at-home or single parent who jointly owned a marital home in the past three years with your spouse; or
• If you have not solely owned a marital home or solely or jointly owned any investment or second properties.

Other first-time homebuyer qualifications

The three-year requirement isn’t the only criteria you’ll need to meet to qualify for a first-time homebuyer program. The other requirements typically include:

• At least a 620 credit score (some programs require at least 640 or 680)
• 3 percent or 3.5 percent down payment, depending on the loan program
• 43 percent or lower debt-to-income (DTI) ratio
• Consistent, verifiable income and at least two years of employment history

What are the benefits of being a first-time buyer?

First-time homebuyers are often eligible for benefits that repeat buyers aren’t, such as:

• A more affordable mortgage with a lower minimum down payment, lower interest rate and/or reduced mortgage insurance
• Down payment and/or closing costs assistance
• Access to first-time homebuying support in many cities and countries

Next steps for first-time buyers

If it’s your first time buying a home, you might be facing information overload or daunted by the search for the perfect home. Here’s what to focus on first:

1. Examine your financial situation. Take a hard look at your credit score, DTI ratio, earnings and savings. Set a realistic budget for your home purchase, including the down payment and closing costs. The 28/36 rule is a good starting point.
2. Do your homework. Find out what first-time buyer programs you qualify for. Many programs require borrowers to complete an education class, so get that task out of the way as early as possible. The good news: You might be able to complete this course online.
3. Get preapproved for a mortgage. When you’re ready to start house-hunting, get preapproved for financing. This helps you understand how much a lender is willing to let you borrow, and allows you to make offers on homes.
4. Shop around. Rates, requirements and deals vary by mortgage lender, so it is wise to shop around until you find your best fit. Read mortgage lender reviews and then narrow down your search to your top three before inquiring about what they can offer you.

FAQ

• What is the minimum income to qualify for first-time buyers?

  There isn’t a minimum income to qualify as a first-time homebuyer, but you do need to earn enough to meet the lender’s standards around your ability to repay and DTI ratio. In general, lenders don’t want you to spend more than 43 percent of your income on a mortgage and any other debt payments, like student loans. With some first-time buyer programs, there are also income limits. These typically vary based on location and are often capped at 80 percent of the area’s median income (AMI). Your loan officer can help you determine whether your income falls under the limit specified for a given program. You can also see your area’s limit using this lookup tool.

• Can you still qualify as a first-time buyer if your partner isn’t?

  You can still qualify as a first-time buyer if either you or your spouse have not owned a primary home in three years, according to the U.S. Department of Housing and Urban Development. This requirement only applies if you and your partner are legally married or in a civil partnership.

• How do first-time homebuyer qualifications vary by state?

  There isn’t much variation between first-time homebuyer qualifications by state. Most lenders adhere to requirements laid out by Fannie Mae and Freddie Mac, which back 3 percent conventional loans, regardless of where they operate. To qualify for a state HFA program as a first-time homebuyer, you’ll have to buy a home within the state. You might be able to get a mortgage through an HFA program as a repeat buyer, but only if you’re buying in a government-designated “targeted area.”

• How much money do I need for a down payment as a first-time homebuyer?

  If you’re buying a home with a conventional loan, you’ll need at least 3 percent down. (Some lenders allow for just 1 percent down on a conventional loan, covering the remaining 2 percent with a grant.) For an FHA loan, the minimum requirement is 3.5 percent. If you’re buying with a VA or USDA loan, you don’t need any down payment in most cases.

• Is it easier to qualify as a first-time buyer?

  Yes and no. Many first-time homebuyers haven’t built up their credit scores or stashed away a large down payment, and that creates challenges. However, lenders understand that reality and are willing to ease some of the qualifying restrictions. This includes lower requirements for down payment and credit score.