First-time Homebuyer Qualifications | Bankrate.com (2024)

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Eligible first-time homebuyers have access to a bevy 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, 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.”

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% or 3.5% down payment, depending on the loan program
• 43% 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.

Learn more: 5 lessons I stumbled into as a first-time homebuyer

FAQ

• 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.

• 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.”

• 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.

• 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.