Who Qualifies As A First-Time Home Buyer?

Did you know it does not have to be your first home purchase to qualify as a first-time home buyer? Many lenders extend that status to anyone who has not owned a home for the past 3 years. This means they can qualify for first-time home buyer tax credits, assistance and special loan programs.

But first-time home buyer qualifications can get a little more complicated for some people, such as single parents or people coming off a divorce, for example. Let’s look at the details.

What Is A First-Time Home Buyer?

The Internal Revenue Service (IRS) defines a first-time home buyer as “an individual who, with his or her spouse if married, has not owned any other principal residence for 3 years prior to the date of purchase of the new principal residence.”

But this definition leaves out people with extenuating circumstances that could benefit financially from first-time home buyer status.  Here is how first-time home buyer qualifications extend to cover those people:

Previously owned a mobile home. If you owned a mobile home within the last 3 years, you still qualify as a first-time home buyer because the dwelling was not fixed to a foundation.

One spouse owned a home, the other didn’t. If a married couple wants to purchase a house together, but one of them recently owned a different home, they qualify as first-time home buyers.

Renter who owns a different home that’s used as an investment property. You can qualify as a first-time home buyer if you get an FHA loan because you have not owned your primary residence for the last 36 months. You would not qualify on a conventional loan because you have owned a home in the last 3 years.

Divorced single parent who has owned a home in the last 3 years. Qualifies as a first-time home buyer if they owned the home with their former spouse and it’s the only home they ever owned.

What Qualifications Does A First-Time Home Buyer Need To Get A Loan?

Once qualified as a first-time home buyer, you are still subject to similar financial scrutiny by lenders as in any other mortgage application. Your first-time home buyer status does get you additional tax credits and, depending on your particular situation and the type of home loan you apply for, other assistance and access to special loan programs.

Each lending institution has its own qualification guidelines, so the following should be considered best estimates:

Credit Score: 620 Or higher

Expressed as a number between 350 and 850, your credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.

Debt-To-Income Ratio: 50% Or less

Your debt-to-income ratio, or DTI, is a percentage that tells lenders how much money you spend on monthly debt payments versus your monthly pretax income. The lower this percentage is, the more attractive you are to lenders because you’re more able to pay them back.

Down Payment: 3% Or higher

Most conventional loans require at least a 3% down payment. Other types of mortgages, such as government backed loans, may have slightly different down payment requirements. This percentage reflects how much of the total loan you’ll have to pay in cash at closing.

Proof Of Income

Almost every lender will want copies of your two most recent pay stubs. Some will also request previous tax returns, bank statements or other documents to determine your eligibility for a loan.

First-Time Home Buyer Mortgage Options

It’s rare that anyone, let alone a first-time home buyer, will have the cash reserves to purchase a home outright. Almost everyone will need to borrow a significant amount of money from a bank or other lending institution.

Mortgage Loans

A mortgage is a loan used to buy real estate. When you take out a mortgage, you transfer the security interest in the home to the lender funding the loan. The security interest is the loan’s collateral. Lenders use it as leverage to offset the risk of lending you such a large amount of money. There are four key loan types, each with different eligibility requirements for first-time home buyers.

Conventional Loan

A conventional loan is a traditional mortgage loan through a private lending institution. Typically, a 5% down payment is required, but you can get a conventional loan with as little as 3% down if you’re a first-time home buyer. If you put less than 20% down, you’ll have to pay private mortgage insurance (PMI) each month until you’ve built up 20% equity in the property.

FHA Loans

An FHA loan is a common type of mortgage that is backed by the federal government through the Federal Housing Agency (FHA). Since the government guarantees that the lender will be paid back if the loan defaults, lenders can be more flexible in their underwriting guidelines, such as lower credit score requirements.

VA Loans

A VA loan is another form of government-secured mortgage that is a benefit for current service members, veterans and their surviving spouses. Qualified borrowers can get a loan with no down payment, no PMI and often slightly lower rates than conventional loans.

USDA Loans

A USDA loan is geared toward helping people in qualified rural communities get a government backed mortgage through the U.S. Department of Agriculture. Qualified borrowers get a 0% down payment, no PMI and significantly reduced interest rates. Rocket Mortgage^® does not currently offer USDA loans.  

First-Time Home Buyer Grants And Programs

HomePath Ready Buyer Program

First-time home buyers can get a HomeReady^® mortgage on a HomePath property through  Fannie Mae. Fannie Mae offers distressed and foreclosed homes, multifamily homes and condominiums to qualified buyers at a 3% down payment and reduced closing costs.

Home Possible

The Home Possible program is offered through Freddie Mac. It’s designed to help very low to low-income borrowers, and it’s available for first-time and repeat home buyers. It’s similar to Fannie Mae’s HomeReady^® program in that it comes with low down payment requirements. And it allows borrowers to use multiple sources for the down payment and closing costs. However, you’ll need completion of a homeownership education course to qualify.

Federal Housing Finance Agency (FHFA) Mortgage Assistance

The FHFA has resources for homeowners who have fallen behind on their mortgage. Particularly, they offer mortgage assistance in response to homeowners that have been affected by disaster. They also may be able to give guidance to other homeowners who can no longer pay their mortgage, as well as general online mortgage education and tips to avoid scams.

First-Time Home Buyer Tax Credits

First-time home buyers may get privileged tax treatment. The IRS allows penalty-free withdrawals from an IRA or 401(k) to buy a first home; and potential other tax incentives.

First-Time Home Buyer Qualification FAQs

How does the Downpayment Toward Equity Act of 2023 affect first-time home buyers?

The Downpayment Toward Equity Act of 2023 was passed “to provide down payment assistance to first-generation home buyers to address multigenerational inequities in access to homeownership and to narrow and ultimately close the racial homeownership gap in the United States, and for other purposes.”

Through this act, first-time home buyers may be eligible to receive a $25,000 cash grant to purchase a new home.

How long do I have to wait after purchasing a home to be considered a first-time home buyer again?

You are considered a first-time home buyer if you have not owned your own home for the past 36 months. Exceptions to this exist for people who have owned a home in the last 3 years but their spouse has not, or divorced single parents who owned a home in the last 3 years and it was the only home they owned.

What credit score do you need to buy a mortgage as a first-time home buyer?

Generally speaking, you’ll need a credit score of at least 500 in order to secure a loan to buy a house. That’s the minimum credit score requirement for an FHA loan. With that said, most loans require a higher score, including a 620 credit score to qualify for a conventional loan.

Is there a minimum income requirement for first-time home buyers?

There is no minimum income requirement for any mortgage. Rather than just looking at your income, lenders will want to know how much debt you have relative to your income, which then dictates how much you qualify for a home loan. Your debt-to-income ratio (DTI) is expressed as the percentage of your monthly income that goes to servicing debt. Typically, lenders want this figure to be 50% or less.

The Bottom Line: You Can Qualify As A First-Time Home Buyer Even If You Have Previously Owned A House

Even if you have owned a home before, you can still qualify as a first-time home buyer and have access to the special tax advantages and loan assistance programs. The most important first-time home buyer qualification is that you have not owned a home for the past 3 years. And there are exceptions to that rule under special circumstances, as mentioned above.

If you’re a first-time home buyer and ready to start house hunting, your first step should be to start the mortgage approval process to see what kind of loan you qualify for.