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First-Time Home Buyer Qualifications: A Complete Guide

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Published on December 20, 2023
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Buying your first home is a major financial milestone. But as you jump into this process, it’s a good idea to understand first-time home buyer qualifications. Otherwise, you might run into unexpected hurdles along the way.

First-Time Home Buyer Overview

First-time home buyers have either never owned a home or haven’t owned one for a long time. Navigating the home buying process can be a challenge. But preparing your finances can make for an easy mortgage application. For example, common first-time home buyer tips include checking your credit before you start house shopping and paying off high-interest debts.

 

As a first-time home buyer, the journey to homeownership may come with an unexpected amount of paperwork. But doing your homework upfront can help you avoid the common pitfalls of the home closing process.

Who Qualifies As A First-Time Home Buyer?

First-time home buyers include people who have never owned a home before. But most first-time home buyer programs also include anyone who hasn’t owned a home in the last 3 years. For example, someone who sold their last home 5 years ago and rented a living space since then would qualify as a first-time buyer for many loan programs.

First-time home loan programs are designed to work with buyers who haven’t owned a home in at least 3 years. But lenders look beyond your homeownership status to approve a mortgage. A few key factors lenders look at include:

  • Credit score: There’s a minimum credit score requirement for most types of loans. Along with that, a good credit score translates into less risk for the lender, showing the borrower can handle debt responsibly. Prospective home buyers with a good credit score can expect higher approval odds and more favorable loan terms.
  • Down payment: While you can find loan options without any down payment requirement, these have stricter eligibility requirements. Most loans require a down payment of some kind. In general, it’s not necessary to put down 20% on a home purchase. But you should expect to put down at least 3% of the home purchase price.
  • Debt-to-income ratio (DTI): Your DTI ratio measures how much of your income is consumed by debt payments. A higher debt-to-income ratio is considered a negative factor by lenders. Prospective home buyers may be able to improve their loan approval chances by paying off other debts.
  • Employment status: Most lenders choose to work with borrowers who have a solid employment history. Not only will you need to earn a sufficient amount to support the loan payment, but lenders also prefer to see a steady or growing stream of income from the last few years.

Even if you meet the qualifications of a first-time home buyer, that doesn’t necessarily mean you’ll qualify for a mortgage. In addition to your status as a first-time home buyer, you’ll need a financial situation that a lender is willing to work with.

What Are The Benefits Of Being A First-Time Home Buyer?

First-time home buyers enjoy many benefits throughout the home buying process. Depending on your financial situation, you might be able to tap into many of the benefits below.

  • Down payment assistance programs (DPAs): Some first-time buyers can tap into DPA programs, which can help overcome the hurdle of saving up thousands for a down payment. It’s important to keep in mind that not all lenders accept all DPA programs offered. Interested borrowers should speak with their lender to see what programs may be accepted.
  • Closing cost assistance: Closing costs can easily add up to thousands of dollars, which can be an obstacle for home buyers. In some cases, first-time home buyers can snag assistance to avoid these costs.
  • Special grants and loan programs: Government-backed loans and special grants can be targeted to help first-time home buyers achieve the goal of homeownership.
  • Home buyer education programs: Homeownership is a significant financial milestone, which comes with plenty of unexpected paperwork. First-time home buyers can often take advantage of free or affordable education programs to help them beef up their knowledge about the home buying process and commitment of homeownership.

Loan Qualifications For First-Time Home Buyers

First-time home buyers have many different types of loans to choose from. While there is a variety available, each loan comes with its own down payment, credit score and DTI requirements.

Additionally, some loans impose other restrictions. For example, VA home loans are only available to current or former military members and eligible surviving spouses, who meet the minimum service requirements. And the USDA loan is only available to home buyers seeking to purchase a home in a designated rural area. The details of these geographic limitations are outlined on the USDA’s loan map.

The table below highlights the basic loan qualifications for some common loan types pursued by first-time home buyers.

Loan Type

Down Payment

Credit Score

DTI

FHA Loan

3.5%

580

43% or lower

VA Loan

0%

Varies by lender; 500-580

Not specified

USDA Loan

0%

640

43% or lower

Conventional Loan

3%

620

50% or lower

First-Time Home Buyer FAQs

As a first-time home buyer, you may want even more information about the homeownership process. Here are answers to some of the most common questions.

What specific loans can I get as a first-time home buyer?

As a first-time home buyer, some loan types you can pursue include FHA loans, VA loans, USDA loans and conventional loans. The loan you get will depend on your financial needs and qualification. Additionally, some states offer first-time home buyer programs to help you navigate the journey to homeownership.

Are there programs or grants for first-time home buyers?

Yes, many states offer first-time home buyer programs and grants to their residents. Depending on the situation, you might qualify for a specialized loan program or down payment assistance grants. You can find more information about your state’s opportunities through your local housing authority. Make sure you speak to your lender to determine which program will be accepted.

Is it easy to qualify for a loan as a first-time home buyer?

Qualifying for a home loan is a significant financial task. While some home loan programs offer more lenient requirements for first-time home buyers, they still need to meet some level of financial stability. Prospective buyers should expect to need a good credit score, down payment of some kind and a low DTI to qualify for a home loan.

The Bottom Line

First-time home buyer is a term that encompasses all home buyers who haven’t owned a home in the last 3 years. If you meet that specification, you’ll likely qualify for most first-time home buyer programs. But meeting that qualification is only one part of the process. Additionally, lenders will expect you to hit other criteria, like having a good credit score or a low DTI ratio.

If you are a prospective home buyer who is ready to take the next step toward your goal of homeownership, get started on an application today

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Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting, and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.