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First-time homebuyer loans and programs

How to qualify as a first-time homebuyer

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With so many special first-time homebuyer loans and programs, buying a new home is no longer a distant dream.

As a first-time homebuyer, you can qualify for special financing or more flexible lending requirements. The biggest perk of these programs is that many define a first-time homebuyer as someone who hasn’t been an owner for three or more years — so there is a good chance you could qualify as a first-time buyer even if you have been a homeowner in the past.

Key insights

  • Divorced spouses could qualify as first-time homebuyers if they have only owned a home with their spouse.
  • Many programs consider individuals who haven’t owned a home in three years or more to be first-time buyers.
  • First-time buyer programs typically have lower down payment and credit score requirements.

Who qualifies as a first-time homebuyer?

You might be surprised at who qualifies as a first-time homebuyer. Even those who have owned a home in the past can qualify.

“A person needs to be buying the property as their primary residence in order to be considered a first-time homebuyer,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. “They cannot have had any ownership interest (sole or joint) in a residential property during the three-year period preceding the date of purchase.”

Additionally, Alvarez mentioned that a single parent or displaced homemaker could be the exception to this rule if they have not owned a home outside of joint ownership with a previous spouse.

“In some instances, these programs for first-time homebuyers have income and or geographic limits, so it is important that you fully understand what is being offered,” Alvarez added. “It is always a good idea to speak with a broker who is able to shop the entire market for you rather than someone who is beholden to one specific lender.”

» MORE: How much house can I afford?

Federal loan programs for first-time buyers

These government-backed programs are available for individuals who don’t qualify for traditional lending.

FHA loan

An FHA loan is insured but not funded by the Federal Housing Administration (FHA) and is a popular option among first-time buyers, especially younger buyers or those who don’t have large savings prepared for a down payment.

With the FHA loan program, buyers can get a home loan with as little as 3.5% down. By insuring the loan, the FHA makes mortgage lenders more confident in providing funds for the borrower.

USDA loan

USDA loans are loans designed for housing in rural areas. A USDA loan is backed by the U.S. Department of Agriculture. If you wish to live outside of a major metropolitan area, it’s possible your desired property can be classified as “rural,” even if it’s in a suburban area.

VA loan

VA loanIf you or your spouse is a veteran or active-duty military, you are eligible for a no-down-payment loan via the Department of Veterans Affairs (VA). VA loans are not exclusive to first-time buyers; they’re a great option for anyone who qualifies.

Energy Efficient Mortgage (EEM)

Energy Efficient Mortgage (EEM)An Energy Efficient Mortgage provides certain benefits for anyone looking to purchase an energy-efficient home (like one with solar panels) or make energy-saving improvements to a home after purchase. Purchasing a home with an EEM can help you qualify for a larger loan.

» MORE: Homebuying checklist

Native American first-time buyers programs

These programs are for individuals with Native American heritage or connection. However, they are not available in all states.

Native American Direct Loan

Offered through the VA, the Native American Direct Loan program helps veterans who are Native American or who have Native American spouses to buy, build or improve property on federal trust land. To qualify, you must have a valid VA Certificate of Eligibility and meet certain credit standards.

Section 184 Indian Home Loan Guarantee

For nonveteran Native Americans, there are other options. Section 184 guarantees loans made to Native Americans and Alaska Native families, making it easier to obtain a home loan from a mortgage lender. Buyers are eligible for a low down payment, and homes can be purchased on or off Native lands.

HUD-specific first-time homebuyers

The U.S. Department of Housing and Urban Development (HUD) has first-time buyer programs that offer financial assistance, counseling and education to help first-time homebuyers navigate the homebuying process.

Good Neighbor Next Door

The Good Neighbor Next Door program earmarks certain homes in revitalization areas for eligible candidates, with a discount of 50% off the list price of the home. Candidates include law enforcement, teachers, firefighters and emergency medical technicians who commit to living on the property as a primary residence for at least 36 months.

HUD Dollar Homes

The HUD’s Dollar Homes program is in place to provide homeownership opportunities for low- to moderate-income families. Homes in the program have been acquired by the FHA through foreclosure and remained unsold on the market for at least six months. These are homes with a market value of $25,000 or less and likely need considerable improvements to be made livable. HUD sells these homes for $1 with the hope they're fixed up to revitalize communities.

Home loans for public housing residents

If you currently live in public housing, HUD has a program in place that lets you convert your rent payments into a mortgage payment. You’ll need to contact your local public housing agency to get details on how to qualify.

State and local first-time buyer programs

While there are several attractive federal programs, we’d be remiss if we didn’t mention the legion of state and local grant programs available. Qualifying for a grant can help offset the cost of owning a home and lower your total mortgage payment, making owning a home more affordable month over month.

Fannie Mae’s HomePath Ready Buyer program

Available in all 50 states, Fannie Mae offers closing cost assistance to future homebuyers who complete a homeownership education course. Graduates of the program are eligible for up to 3% closing cost assistance toward the purchase of a HomePath-designated property.

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    Can first-time homebuyers get a conventional loan?

    There's no rule that says a first-time buyer can't get a conventional home loan. If you have the savings set aside for the typical 20% down payment, you'll be eligible for a conventional mortgage and have your pick of lenders without having to worry about private mortgage insurance. That said, if you’re a first-time buyer, it’s still worth seeing what money-saving programs and grants are available before pulling the trigger on a conventional loan.

    What are the perks of being a first-time homebuyer?

    There are many different benefits of using a first-time homebuyer program, including a lower down payment or down payment assistance, lower interest rates, and more flexible credit score requirements. Read the full list of first-time buyer benefits here.

    Is there a first-time homebuyer income limit?

    Some programs limit eligibility to those with low to moderate income. For example, to be eligible for the guaranteed USDA loan, your household income cannot exceed 115% of the median income of the local area. Fannie Mae loans are also designed for low- to moderate-income candidates. State and local programs vary.

    Bottom line

    Qualifying as a first-time homebuyer can be a smart financial decision that can save you money. Thanks to the special programs sponsored by both the federal government and local governments, the dream of homeownership is becoming more accessible for many individuals, including those who are lower-income, veterans and Native Americans.

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