First-Time Homebuyer Requirements: How to Qualify

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There’s good news if you’re feeling overwhelmed by navigating the homebuying process for the first (or even second) time. As an aspiring homeowner, you can take advantage of mortgages and loan programs tailored specifically to you, making the process more manageable and affordable.

That assumes you meet first-time homebuyer requirements, however. These qualifications focus on your credit score and history, debt-to-income ratio, and income, among other factors. You can also be classified as a first-time homeowner even if this isn’t the first time you’ve purchased a property. Keep reading for more information.

In this post:

Who is considered a first-time homebuyer?

The term “first-time homebuyer” isn’t as straightforward as it sounds. Yes, you qualify if you’ve never purchased a primary residence, but the U.S. Department of Housing and Urban Development (HUD) says you also qualify as a “first-timer” if:

  • You or your spouse haven’t owned a principal residence in at least three years.. This may include “boomerang buyers” — that is, previous homeowners who’ve suffered a foreclosure or short sale.
  • You’re a single parent who has only owned a home with a former spouse.
  • You’re a displaced homemaker who has only owned a home while married.
  • You’ve only owned a home that’s not attached to a permanent foundation.
  • You own a home that’s not compliant with state and local building regulations and can’t bring the property up to code for less than it would cost to build a permanent structure.

Qualifications for a first-time homebuyer

Being a first-time homebuyer doesn’t automatically mean you’ll qualify for a mortgage or first-time homebuyer loan program. First, you’ll need to meet the lender’s criteria.

Every lender has different first-time homebuyer rules, but some of the most common requirements include your:

  • Credit score: A score of 670 or higher is important for getting approved for a mortgage and can also result in a better interest rate.
  • Credit history: Lenders will review this track record to determine if you’ve paid your debts on time.
  • Down payment: First-time homebuyer programs have low down payment requirements, but the larger the down payment you can afford, the more attractive you are to lenders.
  • Debt-to-income (DTI) ratio: Simply put, your DTI is the amount of debt you owe compared to your income. Lenders prefer a back-end DTI ratio of 33% or lower, or 36% of gross monthly income, according to the Federal Deposit Insurance Corporation.
  • Employment history, proof of income: Lenders want to see that you have a stable income and can afford your potential monthly mortgage payments. To prove your income, you’ll need to provide pay stubs or tax returns.
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First-time homebuyer mortgage loan requirements

Consider the following eligibility criteria of the most common first-time homeowner programs:

FHA Loans

Insured by HUD, FHA loans are considered low risk to the lender and are more accessible for first-time mortgage borrowers. These loans are popular with first-time homebuyers for good reason — they come with a relatively low down payment requirement of just 3.5% of the purchase price and more relaxed credit standards.

To be eligible for an FHA loan, you’ll need a minimum credit score of 500 and a debt-to-income ratio of less than 43%.

VA loans

VA loans are government-backed mortgages for eligible veterans, service members, and their families. To qualify, you must meet certain requirements, including possessing a VA certificate of eligibility.

VA loans typically offer lower interest rates and more lenient credit requirements compared to conventional loans, according to the U.S. Department of Veteran Affairs.

Native American direct loans are a similar program for Native American veterans who want to purchase, build, or improve a home on federal trust land.

USDA loans

USDA loans are government-backed mortgages for low- to moderate-income individuals or families in rural areas. These loans have unique requirements, including income limits, geographic location, and other specifications for first-time buyer properties.

USDA loans offer lower interest rates and relaxed credit requirements compared to conventional loans, making them a good option for those who don’t qualify for a traditional mortgage. You can see if a property you’re interested in qualifies under USDA guidelines on the U.S. Department of Agriculture website.

Conventional loans

Unlike many options on this list, conventional loans are private-sector loans not backed by the government. For first-time homebuyers, these loans can be obtained through a mortgage lender and typically require a down payment of 3% to 20%.

Conventional loans have more stringent credit and income requirements compared to government-backed loans, making them best suited for those with good credit and stable income.

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Fannie Mae & Freddie Mac

Fannie Mae was first founded by the U.S. government during the Great Depression. Freddie Mac was founded years later in the 1970s. Both are now private companies that offer conventional mortgages. Typically, these mortgages require a FICO score of at least 620 and are best if you’re looking for a loan with a fixed rate and flexible loan terms.

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

According to Nevada-based, licensed realtor David Tully, there are major benefits that come with being a first-time homebuyer, including tax deductions.

“Some of the tax breaks include interest and property tax payment deductions and negative taxes on the imputed rental value of a property,” says Tully. “These deductions mean you can expect better tax returns and higher annual savings.”

Learn more: First-Time Homebuyer Tax Credits: Everything You Need to Know

That said, the benefits for first-time buyers don’t stop there.

Down payment assistance programs

Down payment assistance programs come in various forms to help you cover your down payment. These include no-interest loans and first-time homeowner grants.

To be eligible, you likely need to fall under certain income limits and complete a homebuyer education course, but requirements will vary based on the program. To find out what programs are accessible to you, select your state from HUD’s directory.

Non-profit first-time homebuyer programs

If you are a low-to-moderate-income individual or family, you can take advantage of lending and purchasing benefits provided by non-profits like Habitat for Humanity and the Neighborhood Assistance Corporation of America (NACA). Through these programs, eligible buyers have access to more affordable mortgages and educational courses, as well as assistance in buying a house for the first time.

Employer-sponsored first-time home buyer programs

Some companies offer their employees assistance on their first home purchase as an employee benefit. Often, this comes with perks like down payment assistance, homebuyer counseling, and even help with negotiating favorable terms with lenders.

That said, not every employer’s first-time homebuyer program is created equal, so you’ll want to check with your human resources department to find out if your company offers this benefit.

Frequently asked questions: First-time homebuyer requirements

Can a first-time homebuyer buy a house without a down payment?

First-time homebuyers can buy a house without a down payment if they’ve qualified for an assistance program that covers it.

What if you’re a first-time buyer, but your partner isn’t?

If you’re purchasing a home for the first time, and your partner has previously owned property, you’ll still be considered a first-time homebuyer, according to HUD’s standards.

How much money do you really need to buy a house?

This depends on factors like the price of the home you want to buy and the types of mortgages you qualify for. In general, you’ll need to have enough cash to cover your down payment, earnest money, and closing costs. A mortgage payment calculator can give you a personalized idea of how much you’ll need to become a new homeowner.

Is it hard to get a first-time homebuyer loan?

Since first-time homebuyer loans often come with more relaxed requirements (such as low credit scores and small down payments), they aren’t as hard to get as conventional loans.

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