Who can qualify as a first-time homebuyer? You may be surprised

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Ask a Lender
June 21, 2017 | Updated June 1, 2018


Key Points

Who qualifies for first-time homebuyer status?

  • If you have not owned a principal residence for three years you may qualify as a first-time homebuyer.
  • Single parents, displaced homemakers and mobile-home owners also may be considered first-time homebuyers.
  • If your spouse qualifies and you are co-borrowers, you may be eligible.

Despite the common challenge of scraping enough money together for a down payment or qualifying for an affordable mortgage, the number of first-time homebuyers has been on the rise.

According to a recent report from Reuters, first-time buying recently dipped 2 percent for one quarter early in 2018 but had been rising sharply for three straight years prior to that.

“It’s a big category,” said Joel Schaub, vice president of mortgage lending at Guaranteed Rate, a Chicago-based mortgage company with lenders ranked in the top 10 across 12 states on Ask a Lender’s Best First-Time Homebuyer Lenders rankings. “There are a lot of different programs out there that appeal to them, everything from loans from government agencies to independent-label, first-time buyer programs. That’s a good thing, because of how many are out there looking to buy.”

That dip earlier this year may only be temporary, too, as millennial demographics point toward an increase in young household for years to come.

“We’re seeing a lot of millennials starting to hit that ‘sweet spot’ age where they’re really starting to enter into the homebuying experience,” said Joe Tyrrell, executive vice president of corporate strategy. “That’s a lot of first-time homebuyers entering the marketplace.”

The term “first-time homebuyer” can be misleading, however, because the eligibility requirements are far broader than simply having never purchased a home before. Are you a first-time homebuyer? This is an important question to answer, because if you are, all of those great home mortgage programs are open to you. Read on to find out.

Have you owned a home before?

The U.S. Department of Housing and Urban Development (HUD), which administers Federal Housing Administration (FHA) loan programs that can be attractive to first-time homebuyers, has several conditions that can be met to qualify as a first-time homebuyer.

The simplest, of course, is that you have never owned a principal residence. Being a previous homeowner, however, does not mean you’re automatically disqualified.

According to HUD, you’re still a first-timer if you haven’t owned a primary residence in the last three years. If you do not meet this requirement but your spouse does, you are still collectively considered first-time homebuyers, as long as you are buying together (i.e., signing as co-borrowers on the loan).

What if you’re divorced?

Divorce can muddy the waters a little bit when it comes to homeownership, but there are still instances when a divorced party can qualify as a first-time homebuyer even after owning a home. For example, if you are a single parent who has only owned a home together with your former spouse while married, HUD still considers you a first-time buyer.

Likewise, you’re still a first-time homebuyer if you are a displaced homemaker who has only shared joint ownership of a home with your former spouse. A displaced homemaker is defined as an adult who has not been employed full time for several years while caring for a family and now faces employment challenges.

What if your home wasn’t a whole house, exactly?

The type of primary dwelling you previously owned matters, as well. If your home wasn’t fixed to a permanent foundation, for example, you’re still a first-time homebuyer. That means if you have been living in an RV, houseboat or mobile home, you should still qualify.

Property damage also can make a difference. If you owned a damaged property that didn’t comply with state or local building codes, you could be a first-time buyer — but only if bringing it into compliance would require rebuilding it altogether.

Having a previous home that was foreclosed on or owning a separate investment or vacation property does not disqualify you as a first-time buyer either.

Still not sure? Not to worry. Just follow our handy “Are you a first-time homebuyer?” flowchart, based on information from HUD. (Click image for full size.)

 Are You a First-Time Homebuyer Flowchart


What about first-time homebuyer programs?

Although the popularity of FHA loans has waned a bit of late in favor of conventional loans, the most popular loans for first-time homebuyers remain those guaranteed by the FHA. These government-backed private loans have several features attractive to first-timers, including down payments as low as 3.5 percent, reduced closing costs and more lenient credit requirements.

Other federally backed programs, although not specifically restricted to first-time buyers, can be similarly appealing. See if you are eligible for a U.S. Department of Veterans Affairs (VA) loan or U.S. Department of Agriculture (USDA) loan, both of which offer mortgages with zero or low down payments.

Several states also have first-time homebuyer programs. Qualified first-time buyers in Virginia, for example, can receive a percentage of the purchase price as a grant to help with their down payments through the Virginia Housing Development Authority’s Down Payment Assistance program. Certain counties in Illinois are covered by the 1stHomeIllinois program, which offers a 30-year mortgage with a $7,500 down payment assistance grant. Do your research to see what programs are available in your area.

Additionally, Freddie Mac and Fannie Mae offer special programs for first-time buyers. One is Fannie Mae’s HomePath ReadyBuyer Program, which provides first-time homebuyers with up to 3 percent assistance to home closing costs once the borrowers complete an online course.

You’ll want to do some thorough homework on each of these programs; their requirements likely will differ significantly because they are offered by a variety of organizations. Factors to check include your credit score, income level and the location of your new home. Once you’ve identified the programs you’re eligible for, don’t forget to compare lenders — that step alone should always help you get more favorable mortgage terms.

Can you get tax relief for being a first-time homebuyer?

This was the case a few years ago, when the Obama administration introduced the First-Time Homebuyer Credit that granted up to $7,500 to new homeowners. Unfortunately, that credit expired in 2010.

Other provisions do still exist, however. The Internal Revenue Service allows first-time homebuyers to withdraw up to $10,000 from traditional Individual Retirement Accounts (IRA) without the usual penalty if used for a home down payment.

This figure can be higher for those borrowers with Roth IRAs. These withdrawals are subject to taxes, however, and removing any money from your retirement account is a choice that only should be taken after careful consideration to avoid damaging your long-term finances. Also note that this provision only applies to an IRA — not a 401(k), 403(b) or any other kind of retirement account.

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