The term “first-time homebuyer” may sound really specific, but it isn’t nearly as limiting as you might think. Even if you’ve owned a home before, you still may be eligible for many first-time homebuyer assistance programs.
That’s good news if you’re hoping to take advantage of benefits like down payment and closing cost help, which could make a real difference in the type of home you can afford — or whether you can afford a home at all.
Read on to find out how you can be a first-time homebuyer twice and how to make the most of any benefits that might be available to you.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
First-Time Homebuyer Qualifying Factors
If you’ve never owned a home before, you’re obviously a first-time homebuyer. But other criteria also can factor into whether you qualify for first-time homebuyer status and can benefit from assistance programs.
When are you considered a first-time homebuyer again? The U.S. Department of Housing and Urban Development (HUD) says a former homeowner may still qualify if you meet one of these criteria:
You Haven’t Owned a Principal Residence for Three Years
Even if only one spouse qualifies under this scenario, both spouses would be considered first-time homebuyers.
It’s Your First Home as a Single Parent
If you’re a single parent who has only previously purchased a home with a former spouse while still married, you qualify as a first-timer.
You’re a Displaced Homemaker
If you are a displaced homemaker who doesn’t or didn’t earn wages from outside employment and has only ever owned a home with a spouse, you would be considered a first-time homebuyer.
Your Last Home Was Detached
If you’ve owned a primary residence that wasn’t permanently attached to a foundation according to applicable building regulations (such as a mobile home when the wheels are in place), you qualify.
Your Home Was Out of Compliance
If you have only owned a home that didn’t comply with state, local, or model building codes, and could not be brought into compliance for less than the cost of constructing a permanent structure, you can claim first-timer status.
State, local, and private first-time homebuyer programs may have their own qualifying criteria, so it can be a good idea to check out all the rules before starting the application process.
Recommended: First-Time Homebuyer Guide
Is It Smart to Be a First-Time Homebuyer Twice?
Finding a home — and figuring out how to afford a down payment on your first home — can be especially challenging in today’s market, while prices are still high and mortgage rates are rising. But if you’re eligible for one of the many assistance programs created to help first-time buyers, you may be able to improve your chances of (literally) getting your foot in the door.
Many states, cities, and community organizations provide assistance in the form of grants or forgivable second loans that can help with the down payment on your home and/or closing costs. Some of these down payment assistance programs only offer support to those who fall under an income cap. But, according to a report from the Urban Institute, up to 51% of potential homebuyers residing in the U.S. metropolitan areas studied would qualify for some form of home down payment assistance. Some private lenders also offer lower low-interest mortgage loans on conventional loans and other benefits to qualifying first-time homebuyers. And, of course, there are several longstanding federal programs that may offer more lenient income and credit score requirements, smaller down payments, and lower mortgage rates. So it can be a good idea to investigate all the opportunities available to you — and to your spouse if you’re married.
Benefits of Using an FHA Loan
Whether this is the first time you’ve considered purchasing a home, or you’re a returning first-time homebuyer, you may want to look into the benefits provided through the Federal Housing Authority (FHA) loan program.
The FHA isn’t a lender, so it doesn’t make loans directly to borrowers. Instead, it insures loans made by HUD-approved private lenders. If a property owner defaults on the mortgage, the FHA will pay the lender’s claim for the unpaid principal balance.
Because lenders are taking on less risk with an FHA-insured loan, they can offer more flexible eligibility requirements, lower down payment amounts, and lower closing costs than a buyer might get with a conventional loan. For example, if you have a FICO® credit score of 580 or higher, you may qualify for an FHA loan with just 3.5% down. And even with a score between 500 and 579, you still could be able to get a loan with 10% down.
FHA loans also may offer lower interest rates than comparable conventional mortgages, which could be an important consideration if mortgage rates keep rising in 2023.
Are There Drawbacks to an FHA Loan for First-Time Homebuyers?
FHA loans can be appealing to first-time buyers who are struggling to come up with a down payment, or who have a low debt-to-income ratio or other problems qualifying for a mortgage. But, a potential downside is that the mortgage insurance premiums borrowers typically must pay to get and keep an FHA loan may end up being more expensive than the private mortgage insurance required for a conventional home loan. Here’s what those costs can look like when you compare MIP versus PMI:
• Homebuyers with a conventional mortgage can expect to pay an annual premium for private mortgage insurance (PMI) until they have at least 20% equity in their home. (If you make a down payment of 20% or more, PMI isn’t required.) PMI costs can vary based on the type of mortgage you get, your loan-to-value ratio (LTV), your credit score, and other factors, but generally, the annual premium is 0.5% to 1% of the total loan amount.
• FHA borrowers, on the other hand, are required to pay two separate mortgage insurance premiums (MIP). One premium is paid upfront at closing and is 1.75% of the loan amount. The other premium is based on the amount, length, and loan-to-value (LTV) ratio of the mortgage and is usually paid annually for as long as you have the FHA loan. If you put down at least 10%, you may have the FHA MIP removed after 11 years of payments — but unlike PMI on a conventional loan, there is no equity cutoff for MIP.
As you research different lenders and types of loans, you may want to keep these costs in mind. Remember: Mortgage insurance, whether MIP or PMI, protects your lender, not you, if you default on your payments. You still could ruin your credit or lose your home to foreclosure if you fall behind, so it’s important to keep your payments as manageable as possible.
Other First-Time Buyer Options
FHA loans are a popular borrowing option, but there are many other first-time homebuyer programs that could help you manage your costs, including programs offered by your state or city, or through local charitable organizations. Your real estate agent or lender may be able to help you find a program that’s appropriate for your situation. You also can find information through your state housing finance agency or HUD.
Other federal programs that you may want to consider include:
Freddie Mac Home Possible Mortgages
The Federal Home Loan Mortgage Corporation, known as Freddie Mac, offers the Home Possible mortgage program to help low-income borrowers who hope to purchase their own home. Because the program is backed by Freddie Mac, approved lenders can accept a smaller down payment from qualifying buyers, and some qualifications and terms may be more flexible than with a conventional mortgage.
Fannie Mae HomeReady Mortgages
The Fannie Mae Home Ready Mortgage is another path to homeownership for low-income borrowers. Creditworthy buyers may find lenders are more flexible with their terms and qualifications because these loans are backed by Fannie Mae.
Department of Veterans Affairs (VA) Loans
With a VA-backed home loan, the Department of Veterans Affairs guarantees a portion of the loan you obtain from a private lender. And because there’s less risk for the lender, you may receive better terms. Service members, veterans, and eligible surviving spouses may be eligible for this assistance.
US Department of Agriculture (USDA) Loans
The USDA offers both direct and backed loans to assist very low, low- and moderate-income buyers who want to buy a home in an eligible rural area. Usually, no down payment is required. And more areas of the country are eligible for USDA-loan status than you might imagine.
HUD Good Neighbor Next Door Program
Eligible law enforcement officers, teachers, firefighters, and emergency medical technicians may find housing help through HUD’s Good Neighbor Next Door program. Through this program, certain single-family HUD properties in designated revitalization areas are available for sale to public service workers at 50% off the list price.
Recommended: How Much House Can I Afford?
If you can qualify for one of the many assistance programs available to first-time homebuyers (even if you’ve owned before), you may be able to significantly reduce the daunting down payment and closing costs that can come with purchasing a home. Or you may qualify for a loan with a lower interest rate.
While you’re considering your options, though, keep in mind that you won’t necessarily have to come up with a 20% down payment if you decide to go with a conventional loan.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
Can I be a first-time homebuyer again?
Yes, under certain circumstances, you may qualify as a first-time homebuyer even if you’ve owned a home before. You may be eligible for many first-time buyer programs, for example, if you haven’t owned a home in three years.
Can I get an FHA loan twice?
Yes, you can apply for an FHA loan even if you’ve had one before. But you usually can’t have more than one FHA loan at a time.
As a first-time homebuyer, am I required to make a 20% down payment?
No. A first-time homebuyer may be able to qualify for a mortgage with as little as 3% down.
Photo credit: iStock/FG Trade Latin
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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