First-time Homebuyer Qualifications

Key Points

• First-time homebuyers are those who have never owned a home or have not owned a home in the past three years.

• Under this definition, a first-time buyer may qualify for a more affordable mortgage down payment and help with closing costs.

• If you want a first-time buyer loan or help, you'll likely need to complete a homebuyer education course to qualify.

Eligible first-time home buyers can access many down payment and mortgage assistance programs. Here's how to find out if you qualify.

Who qualifies as a first-time home buyer?

When determining a first-time homebuyer's eligibility for a loan or other types of assistance, the term "first-time homebuyer" can be misleading. In many programs, "first-time homebuyers" refer to people who have never owned a home or have not owned a home in the past three years.

This difference can make a difference for buyers who owned homes several years ago and are back in the market today.

"There are a lot of misconceptions about what it takes to qualify for these programs," says Ilana McCargo, president of Ginny May. "People are confused by income levels; "they think they've earned too much or don't realize they could have owned a home before they qualified."

When will you be considered a first-time home buyer again?

You are considered a first-time home buyer if any of these situations apply to you:

• You have not owned a home in the last three years.

• You are a homemaker or a single parent who jointly owned the marital home with your spouse in the last three years or

• If you are not the exclusive owner of the marital home, nor are you a co-owner of any investment or other property.

Other Qualifications for First-Time Home Buyers

The three-year requirement is one of many criteria you'll need to meet to qualify for the first-time homebuyer program. Other requirements typically include:

• A credit score of at least 620 (some programs require at least 640 or 680)

• 3% or 3.5% down payment, depending on the loan program.

• A debt-to-income (DTI) ratio of 43% or less

• Stable, verifiable income and at least two years of work history.

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

First-time home buyers are often eligible for benefits that regular buyers don't have, such as:

• More affordable mortgages with minimum down payments, lower interest rates, or lower mortgage insurance

• Help with down payment and closing costs

• Access to first-time homebuyer support in many cities and countries.

Next Steps for First-Time Buyers

If you're a first-time home buyer, you may be experiencing information overload or feeling intimidated by the search for the perfect home. Here's what you should pay attention to first:

• Review your financial situation. Take a closer look at your credit score, DTI ratio, income, and savings. Set a realistic home purchase budget, including down payment and closing costs. The 28/36 rule is a good starting point.

• Do your homework. Find out which first-time buyer programs you qualify for. Many programs require borrowers to complete an education class, so get this done as soon as possible. The good news is that you can take this course online.

• Get pre-approved for a mortgage. When you're ready to start looking for a home, get pre-approved for financing. This helps you understand how much a lender is willing to lend you and allows you to offer homes.

Frequently Asked Questions

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

No minimum income exists to qualify as a first-time home buyer, but you must earn enough to meet the lender's standards for your ability to pay and the DTI ratio. Lenders generally only want you to spend up to 43% of your income on mortgage or other debt payments, such as student loans.

As with some first-time buyer programs, there are income limits. These vary by location and are often limited to 80 percent of the Area Median Income (AMI). Your loan officer can help you determine if your income is below the limits set for a program. You can also check your area limits using this search tool.

How does first-time homebuyer eligibility vary by state?

The ranking of first-time home buyers is similar by state. Most lenders meet the requirements set by Fannie Mae and Freddie Mac, which support 3 percent conventional loans, regardless of where they operate.

To qualify for the state HFA program as a first-time homebuyer, you must purchase a home within the state. You may be able to get a mortgage through the HFA program as a regular buyer, but only if you buy in a government-designated "target area."

How much down payment do I need as a first-time home buyer?

Buying a home with a conventional loan means you'll need at least 3% down. (Some lenders allow only 1% down on a conventional loan, covering the remaining 2% with a grant.) For an FHA loan, the minimum requirement is 3.5%. You usually don't need a down payment if you buy with a VA or USDA loan.

Is it easy to qualify as a first-time buyer?

Yes and no. Many first-time homebuyers still need to improve their credit scores or save up for a large down payment, which creates challenges. However, lenders understand this and are willing to relax some eligibility restrictions. This includes down payment and credit score requirements.