Who is considered a first-time home buyer?
First-time home buyers have access to special loans and assistance programs that repeat buyers may not receive.
If you’ve owned a home before, you might think that none of these benefits are right for you. But this is not always the case.
Many qualify as first time buyers, even if they have previously bought a home. The most common rule is that you cannot have a home. over the past three years…
So, if you’ve owned a home in the past but don’t currently own it, don’t write off first-time home buying programs. You may still be eligible to participate.
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What kind the benefits of being considered a new home buyer?
If you buy your very first home, you are counted as a first time home buyer by default. But you can also be considered a first-time buyer if you haven’t had a home in the last three years.
If you are considering yourself a first-time buyer, here are the main benefits you can get depending on your situation.
Down payment assistance programs (DPA)
This is where first-time homebuyers can really win. Advance Payment Assistance (DPA) programs offer assistance with your upfront costs, including a down payment and often closing costs.
Requirements vary by program, but many are accepting new low- to moderate-income homebuyers.
With them, you can ask for help in the form:
- A low-interest loan is funds that you will pay at the same time as your mortgage.
- Interest Free Forgiveness Loan – There are no monthly payments and your loan is forgiven in stages, which means you don’t owe anything after a certain number of years.
- A home purchase grant is actually a cash gift with no strings attached
There are over 2000 DPA programs in the USA And there must be at least one (possibly several) coverage where you want to buy.
Some down payment assistance programs allow you to choose the assistance you need. For example, Florida Housing Finance Corporation allows Florida residents to choose from:
- Florida Assist – Borrow up to $ 7,500 at 0% per annum with no monthly payments. To return the entire amount in the event of “sale, transfer, repayment of the first mortgage, refinancing of the property or until the moment when the mortgagor ceases to occupy the property”
- HFA Preferred and HFA Advantage PLUS – You can get a second Fannie Mae or Freddie Mac mortgage at 3%, 4% or 5% of the value of the first loan. At the end of each year of the five-year term of the second mortgage, 20% of the loan amount is forgiven. So at the end of the 5th year you don’t owe anything
- Florida Home Ownership Loan Program – Borrow a second mortgage at 3% over 15 years. You pay it off on a monthly basis in parallel with your main mortgage loan.
But not all DPAs offer a variety of programs. So look for as many local options as possible and compare them.
Rules for new and repeat buyers
Each DPA program is independent and can set its own rules. As such, some of them will help anyone, while others will restrict their offerings only to first-time buyers.
However, many define a first-time buyer as someone who did not own the home or his or her name was listed on the mortgage agreement within the previous three years. Will it be yours? You need track down the ones that serve your area and ask.
Is it easier to qualify as a first-time buyer?
A mortgage lender won’t give up on their rules just because you are the first time home buyer. Lenders still need to confirm that you can afford the monthly payments.
This means you go through the full underwriting process – your credit, income, savings, and other personal financial information – just like any other home buyer. Loan programs do not offer any easier requirements for new buyers.
But this is in your best interest as well as in the interest of the lender. Who wants a home loan they can’t afford?
The application process ensures that you get a home within your means and a reasonable monthly mortgage payment.
Mortgage lenders want to know that you are able and willing to make your home loan payments on time. They use four main criteria to assess your eligibility:
- Credit rating – People with high scores have proven to be good managers and responsible borrowers. The higher your credit rating, the more loan options you will have and the lower your interest rate is likely to be.
- Debt to Income Ratio (DTI) – This is an indicator of how much of your monthly gross income is eaten up by existing obligations. These include debt and credit card payments, housing costs (estimated at your new home), and things like child support and alimony.
- An initial fee – The larger your down payment, the better the mortgage deal will be offered. But many loans come with low down payments of only 3% or 3.5% of the purchase price. And, if you are eligible for a VA loan or USDA loan, you may not need any down payment at all.
- Adequate and reliable income – You will need a decent work record that assumes you can keep a job that brings in enough money to afford a mortgage on top of your existing debt.
Below we list the minimum credit scores and down payments required for various types of loans. And you can learn about DTI requirements here…
All of this applies to both existing homeowners and those qualifying as a first-time home buyer.
Some mortgage programs, such as USDA loans and Fannie Mae’s HomeReady loans, also have income restrictions. That said, your family’s income should be close to or below the average income in the area where you are buying.
However, many loans that are popular with first-time home buyers such as FHA Loan and 3% Discount Regular 97 – allow any amount of income.
Best mortgage programs for novice buyers
Traditionally, saving on the down payment has been the biggest hurdle for those looking to buy their first home. But it is often a phantom barrier.
Yes, a 20% down payment has its advantages. For example, you will not pay for private mortgage insurance (PMI).
But why not use a low down payment mortgage first? You can refinance as soon as house price increases and monthly payments bring you 20% of your home equity. In the past, this has been a shortcut for millions of homeowners.
Low down payment mortgage
All the most popular low down payment mortgage open to new buyers. This includes:
- Possible Loans to Fannie Mae HomeReady and Freddie Mac Home (Reduced by 3%) – Min. 620 credit rating
- Conventional loans (Reduced 3%) – Conventional 97 mortgage only requires 3% reduction and 620 FICO points
- FHA loans (Down 3.5%) – Supported by the Federal Housing Administration. Min. 580 credit rating
- VA credits (Down 0%) – Supported by the Department of Veterans Affairs. Min. credit rating varies depending on the lender, usually in the range of 580-640
- USDA loans (Down 0%) – Supported by USDA. Min. a credit rating of 640 or higher is common
All are open to both existing homeowners and new buyers.
True, for those who buy for the first time, there are benefits from time to time. For example, repeat buyers with VA loans pay slightly higher funding fees at closing.
And your loan officer or real estate agent can offer a little extra help throughout the process if this is your first home purchase.
But in general, the benefits of these loans are open to any home buyer. This means that you can probably find a loan with a low down payment or a loan with lower credit requirements, even if you are not eligible to buy a home for the first time.
The key is to shop around and explore all mortgage options. Qualifying may be easier than you think.
FAQ for novice buyers
May be. But not if you currently have your own home. Many lenders and assistance programs apply the three-year rule. You are counted as a first-time buyer if you did not have a home or was listed on the mortgage agreement within the previous three years.
You can still be considered a first-time buyer. Most lenders and DPA programs follow US Department of Housing and Urban Development policies. HUD claims that the first time buyer is: An individual who did not hold title to a primary residence for a 3-year period ending on the date of purchase of the property. This includes the spouse (if any of them meet the above criteria, they are considered first-time home buyers). So everything should be all right.
There is no minimum income required to buy a home. You just need to be able to comfortably pay your mortgage payments. Your earnings will depend on your current debts, down payment, and the housing price you hope to afford.
This is rare, but possible. You will probably need help from the Down Payment Assistance Program or your family to cover what you need. Remember that you must pay the closing costs as well as the down payment. Thus, even borrowers with zero down payment mortgages often need help or savings.
Technically it is 500. But this is an FHA loan with a down payment of 10% or more. With an initial payment of 3.5%, you will need at least 580 points. Other types of mortgages usually require higher minimum scores, around 620 or 640. And some individual lenders may want higher FICO scores than these minimums.
The minimum down payment is usually 3-5% of the purchase price. But you need to set aside another 2-5% of the purchase price for other home buying expenses. These include down payments, closing costs, deposit, prepayment of real estate taxes, and homeowner’s insurance. Remember, some down payment assistance programs can help with these other costs. So look for the best in the area where you buy.
It depends on what you mean by “tough”. Most lenders love new buyers and will do their best to help. Plus, an upfront payment and help in closing the deal can lower your out-of-pocket expenses. The hardest part is finding the right home for your price and doing all the necessary administrative work. However, millions of people have successfully bought their own homes in the past, so cheer up – the process can be challenging, but definitely not impossible!
Check your eligibility as a new buyer
You can assess your eligibility for home ownership based on your credit score, income, savings, and debt. Above, we have shared some general mortgage requirements.
But the final word rests with the mortgage lender. So, if you are ready to start looking for a home, the first thing you need to do is get lender approval.
Get a pre-approved lender to check your mortgage rates and make sure you can afford the home you want.