Many mortgage and down payment assistance programs are designed for first-time homebuyers. While this designation includes consumers who have never bought a home before, repeat buyers can sometimes qualify, too.
What is a first-time homebuyer?
The term “first-time homebuyer” isn’t as restrictive as you might think. In fact, it often extends to repeat buyers — people who have bought one, two, three, or even more homes in the past.
The catch is how long it’s been since you purchased those homes. For example, the U.S. Department of Housing and Urban Development identifies first-time homebuyers as anyone who has not owned a home in the last three years.
Other parties can qualify, too, including single parents who only owned a home while married to a previous spouse or individuals who owned properties that weren’t on a permanent foundation (e.g., a mobile home).
Who qualifies as a first-time homebuyer?
Many people can qualify as first-time homebuyers — not just those who have never bought a home before.
Let’s look at a few examples of when you may or may not be considered a first-time homebuyer:
If you’re considering a home purchase — whether you’re a first-time homebuyer or not — be sure to shop around for the best rates.
What first-time homebuyers can do
Being considered a first-time homebuyer can qualify you for various loans and assistance programs that can help with your closing costs, down payment, and more.
Here are some of the options that might be available to you as a first-time homebuyer:
FHA loans
Being a first-time homebuyer isn’t required for FHA loans, but they’re great options if it’s your first house or it’s been a while since you’ve bought one.
FHA loans require small down payments, and their credit score standards are lower than on other mortgages out there.
To qualify for maximum financing, you’ll need:
- A 3.5% down payment
- At least a 580 credit score
- A debt-to-income ratio of 43% or less
The property you’re buying must also serve as your primary residence.
Low-down-payment conventional loans
There are several conventional loan programs that first-time buyers can qualify for as well — many of which require very small down payments.
Here are the programs you might consider as a first-timer:
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State and local mortgage assistance programs
There are also a slew of programs designed to help first-time homebuyers with closing costs, down payments, and other expenses.
Some are provided as grants (which don’t need to be repaid), while others come in the form of second loans — though many are forgiven if you stay in the home long enough.
Tip
To find assistance programs in your area, check out the Department of Housing and Development guide for your state.
Tax credits
There are also tax credits you might be eligible for as a first-time buyer, including mortgage credit certificates (MCCs).
These offer a dollar-for-dollar reduction of your federal income tax bill, based on the amount of mortgage interest you pay on your home. In Texas, for example, the MCC is worth 20% of your total interest.
Making an early IRA withdrawal for a down payment
With IRA accounts, you’re typically not allowed to withdraw earnings until you reach 59 1/2 years of age. If you do, you’d owe a 10% penalty on the withdrawal amount.
First-time homebuyers, fortunately, qualify for an exception. As long as you haven’t owned a house in the last two years, you can withdraw up to $10,000 from your IRA account penalty-free.
Tip
The money can be put toward buying, building, or rebuilding a home or covering any associated settlement, financing, or closing costs and must be used within 120 days.
If you’re unable to use the funds according to these rules, you’ll have to pay the traditional 10% penalty (unless you’re over 59 1/2).
First-time homebuyer programs open to previous homeowners
Many programs have wide definitions of a first-time homebuyer. With the HomePath Ready Buyer program, for example, you simply can’t have owned a home in the last three years.
Here are some of the programs that extend first-time buyer benefits to those who have purchased homes before:
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Individual banks and local credit unions may also offer programs for first-time buyers, so make sure to do your own research.
To find great a lender, use Credible as a starting point. It’s free, simple, and won’t affect your credit score.
