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First-time homebuyer benefits

Here’s how to qualify for perks when you buy your first home

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Your homebuying dreams are finally about to come true. But going through the mortgage process for the first time can be daunting, especially if you don’t have a lender to walk you through each step like one of our reviewers from Alabama.

While you might be bombarded with a bunch of mortgage terms you don’t know, an advantage to being a first-time homebuyer is that you can access quite a few perks. You might be eligible for several grants and loans that make buying a home more financially feasible than you thought.

Key insights

  • A first-time homebuyer is someone who has not owned a primary residence for three years or more.
  • First-time homebuyers may qualify for down payment assistance, grants, and special loan programs that can help make homeownership more accessible.
  • While lenders generally prefer a debt-to-income (DTI) ratio of 43% or lower, some first-time home loan programs may permit ratios up to 50%.

Do I qualify as a first-time homebuyer?

Many programs define first-time homebuyers as someone who has not owned a primary residence in the past three years. You would be considered a first-time homebuyer if you have never bought a home before or if you bought a home in the past, sold it and have been renting for the past three or more years.

Additionally, some programs might consider you a first-time homebuyer if you are recently divorced. For example, if you owned a home with your spouse and divorced, you would be considered a first-time homebuyer since you have not owned a home by yourself in the past three years.

» MORE: First-time homebuyer loans and programs

Benefits of being a first-time homebuyer

As a first-time homebuyer, you may enjoy several benefits beyond the satisfaction of owning a property — no more asking the landlord for permission to redecorate. As a first-time buyer, you might be eligible for down payment assistance programs and grants that can help make the purchase more affordable. Additionally, you can apply for tax credits and deductions that can reduce your tax bill.

What are the requirements for a first-time homebuyer loan?

Most first-time buyers (61%, according to the National Association of REALTORS) choose to finance their homes with conventional loans. However, there are government-backed alternatives, including Federal Housing Administration (FHA), Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, that could be better for new buyers. FHA loans make up about 23% of loans taken out by first-time buyers; VA loans account for 6%.

“Lenders typically look for DTI ratio to be 43% and lower, but many first-time home loans will allow up to 50% depending on loan-to-value ratio (LTV) and credit score,” said Scott Lindner, national sales director at TD Bank Mortgage. “Borrowers should minimize their credit card balances and pay off loans that may have only a few payments left to positively impact this ratio. In this case, lower is better!”

» MORE: How to get out of debt

The following mortgage options have varying credit scores, down payment and DTI ratio requirements.

Credit score 500 None None, select lenders might require 640+ Varies by lender, most require 620+
Down payment 10% for credit scores between 500-579; 3.5% with a score of 580+ None None Can be as low as 3%; 20% needed to avoid private mortgage insurance (PMI)
DTI Most lenders require 43% or lower 41% or lower 41% or lower 36% or lower

Not sure which mortgage option you qualify for? Here’s more information about each type of loan program:

FHA loans are offered by FHA-approved lenders and backed by the federal government.

While the FHA offers a number of loan programs, its 203(b) loans are popular among first-time homebuyers because it tends to have lower down payment and credit score requirements than conventional loans.

Guaranteed by the U.S. Department of Veterans Affairs, VA loans are available to active-duty military members, veterans and their surviving spouses. As with USDA and FHA loans, you can apply for a VA loan through an approved VA lender. You’ll need to show a VA Certificate of Eligibility to apply.
USDA loans are available thanks to the U.S. Department of Agriculture. This loan type is used for purchasing or refinancing properties in rural areas, but you might be surprised at what counts as a rural area. Many up-and-coming areas still qualify under the USDA’s guidelines. As with FHA and VA loans, you can get USDA loans from approved USDA lenders.

The USDA has multiple loan programs, but its Section 502 Guaranteed Loan Program is its most popular option for single-family homes. This program was created to encourage homeownership for low- to moderate-income earners in rural areas.

» MORE: FHA loans vs. USDA loans: 6 key differences

Conventional mortgages are offered by private lenders (like banks and credit unions) without government backing, which means this type of loan tends to have stricter requirements.

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    How do you qualify for a first-time homebuyer grant?

    First-time homebuyer grants can help cover down payment or closing costs without requiring repayment, making them a favorable alternative to loans. However, grant programs vary in requirements, with some mandating the property be the primary residence for a specific period and others having income limitations. Checking the eligibility criteria for each grant is crucial to determine qualification.

    Are there down payment assistance programs?

    Yes. Down payment assistance programs can help first-time homebuyers with the initial costs of buying a home. This type of assistance is generally offered as either a grant or a loan. The qualifications for assistance vary, but you’ll probably need a credit score of 620 or higher to qualify.

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

    “In general, most lenders require a credit score of 620 or higher, but you may find some options as low as 580. However, credit score requirements vary for different loan types and for different lenders,” said Lindner. “ It’s a common misconception that borrowers must have a high credit score to buy a home. I encourage borrowers not to get hung up on their credit score and rule themselves out of the process before it even starts.”

    Bottom line

    If you’re a first-time homebuyer, there are a lot of incentives you can take advantage of. You may want to look into loan and grant programs that can make your initial costs easier to afford. Some options, like HUD’s Good Neighbor Next Door program, can reduce the purchase price of a home, but you may have to buy a property in a specific area to take advantage of this kind of assistance.

    Government-backed loans, like FHA and USDA loans, tend to cater to first-time buyers since they usually have less stringent requirements than conventional loans. When comparing loan options, just make sure to evaluate the overall cost of the loan (including interest, closing costs, etc.) to find the best option for you.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
    1. National Association of REALTORS (NAR), “Tackling Home Financing and Down Payment Misconceptions.” Accessed March 27, 2023.
    2. U.S. Department of Veterans Affairs, “Purchase Loan.” Accessed March 27, 2023.
    3. U.S. Department of Agriculture (USDA), “Single Family Housing Programs.” Accessed March 27, 2023.
    4. HUD, “LET FHA LOANS HELP YOU.” Accessed March 27, 2023.
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