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Do You Qualify as a First-Time Home Buyer?

June 13, 2019 · 7 minute read

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Do You Qualify as a First-Time Home Buyer?

For most of us, buying a house will most likely be the biggest purchase we make in our lifetime. But if you haven’t done it yet, the process might seem overwhelming.

First step in the homebuying process is usually to get prequalified from a lender and identify the right mortgage program and provider for you. Next step is getting preapproved, a preapproval letter shows buyers you’re serious because at this stage your credit, income and assets have been reviewed and approved by a lender. Then, you are ready to find the house you want (subject to program eligibility).

Once you have found the home you want, it’s time to make an offer and negotiate with the seller. You also have to fill out the required mortgage paperwork, not to mention the other necessities such as: home inspections, property valuation, closing costs and more. Who qualifies as a first-time home buyer?

The process can seem overwhelming, but thousands of people every year purchase their first home. Homeownership in the U.S. is currently at 64% , and first-time home buyers make up 33% of all home buyers.

To get a sense of who qualifies for a mortgage as a first-time home buyer, let’s take a look at the governments definition. For conventional financing Fannie Mae defines a first time homebuyer as an individual who (1) is purchasing the security property; (2) will reside in the security property as a principal residence; and (3) had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property.

In addition, an individual who is a displaced homemaker or single parent also will be considered a first-time home buyer if he or she had no ownership interest in a principal residence (other than a joint ownership interest with a spouse) during the preceding three-year time period. For HUD (FHA) definition is similar.

Now, let’s look at the average first time home buyer numbers: The median age is 32 and the median income is $75,000. Most home buyers are married, have no kids, and previously rented. As of March 2019, the median home price for this purchasing group was $190,000—which differs from the general U.S. median home sales price of $307,700 ending 1Q19.

Lenders will look at things like your income, assets, credit history and property to determine eligibility for approval on different loan options. But many lenders allow you to explore upfront if you prequalify for a mortgage by submitting some personal information online.

After filling out the form, you might be shown some potential loan programs with rates and terms you may qualify for if you chose to continue with a formal application. If you don’t appear to qualify for a mortgage due to insufficient down payment amount or closing costs, there are home buyer down payment assistance programs that could work for you.

What to Look For in a Mortgage?

Before you even start looking at houses, the first step of the home-buying process could be to get your finances in order. When borrowing for a mortgage, lenders will review a variety of factors. Two of these factors are your debt-to-income ratio (DTI) and your credit score. These factors can come into play when determining eligibility for different loan options.

There are a variety of loan options available to choose from. On a conventional mortgage loan with no PMI, you would normally put down 20% of the purchase price and then pay off the remaining amount with a secured mortgage at your chosen terms.

There are also loans with lower down payment options, though some of those programs may have additional eligibility requirements along with mortgage insurance. And there are loans with shorter repayment periods and loans with variable interest rates.

When thinking about how much to put down on your new home, it may be a good idea to consider your budget in order to meet the new monthly mortgage payments in addition to your other expenses.

If your credit and income appears to be eligible, but you haven’t saved enough for a down payment , try exploring down payment assistance programs. These programs can vary depending upon many factors, so check the eligibility criteria for each program.

According to the FDIC , “Down-payment assistance second mortgages provide borrowers with financial assistance to pay for the required down payment and closing costs associated with purchasing a home and makes it possible for those who do not have sufficient savings to meet the standard program requirements to own a home.

In addition, subsidized interest rates on the down payment assistance second mortgage can increase the affordability of housing payment and the likelihood that the borrower will qualify for the loan.”

Down payment assistance programs can have additional qualifying criteria – for instance, some may have income and/or sales price limits. Let’s look at one program in particular to view how a down payment assistance (DAP) program works.

For our example, we will use CalHFAs DAP Program(s). First, check out the borrower eligibility page, this will walk you through the program criteria. Income and/or sale price may be subject to limitations. There is also a loan scenario calculator you can use to plug in some numbers. CalHFA’s subordinate loans are “silent seconds”, meaning payments on this loan are deferred so you do not have to make a payment on this assistance until your home is sold, refinanced or paid in full. This helps to keep your monthly mortgage payment affordable.

Some down payment assistance programs can be layered with other programs or grants. You may also see a requirement for HomeBuyer Education connected to these types of programs. It is also good to note that although these programs are termed down payment assistance, in some cases they can also be used towards eligible closing costs.

You can use our Home Affordability
Calculator to get an estimate of how
much house you can afford.


Down Payment Assistance for First-Time Home Buyers

Qualifying as a first-time home buyer can vary based on the definition under the program offered, but most programs follow the 3 year primary residence rule for eligibility. The following is a list of loan programs that may support a DAP second lien. These programs are not necessarily limited to first time homebuyers and it’s important to note that the eligibility requirements for a first lien loan program can vary from the requirements for a DAP second lien loan program. In the case of conflicting guidelines, the lender is usually advised to follow the more restrictive.

Freddie Mac’s Home Possible program and Fannie Mae’s 97% LTV : Both Fannie Mae and Freddie Mac are government-backed mortgage lenders. The Home Possible program offers low down payment options (as low as 3%) for low- and moderate-income first-time home buyers. There are also sweat equity down payment options and flexible terms. Fannie Mae’s program also offers 3% down payment loans and the Fannie Mae HomeReady mortgage provides some money back toward closing costs after an educational counseling session.

•  FHA loans : FHA stands for Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). Basically, when you borrow this type of loan, the mortgage is insured by the FHA, which means it could be possible for you to borrow a loan with fewer requirements. If you have a credit score of 580 or higher , then you could get a loan with just 3.5% down. If you have a score below 580, you may still qualify for a loan with 10% down.

•  FHA Section 203(k): The FHA Section 203(k) loan is also administered by the FHA, but is designed for you to rehab a fixer-upper. The down payment can be as low as 3%, and the loan is based on the value of the home after the renovations. But you are required to spend a certain amount of the loan on repairs and improvements, and there are certain requirements on qualifying homes.

•  USDA loan : The U.S. Department of Agriculture offers home buyer assistance programs to buy (or, in some cases, even build) a home in certain rural areas. Eligibility for these loans is determined by your income. Income has to be within a certain percentage of the average median income for the area, which varies by region. If you qualify, the loan requires no down payment and offers a fixed interest rate over the life of the loan. However, this loan carries an up-front guarantee fee and an annual fee.

•  VA loan : A VA loan is a mortgage option with no down payment requirement that’s available for military members, veterans, and certain surviving military spouses. The Department of Veterans Affairs (VA) guarantees part of the loan, which is what makes it possible for lenders to offer competitive interest rates and no down payment. A VA loan is not subject to PMI, which is tied to conventional lending, and although a VA loan does not state a minimum credit score, lenders who make the loan will set their minimum score for the product based on their risk tolerance.

•  Good Neighbor Next Door program : If you’re a law enforcement officer, firefighter, EMT, or teacher, then the Good Neighbor Next Door program could be an option for you. This program, which is run by HUD, provides 50% off of the listing price of a home in specific revitalization areas. In turn, you have to commit to living there for 36 months. Homes are listed on the HUD website each week, and you have to put an offer in within seven days.

There are also local or state programs that offer down payment assistance in the form of tax refunds or credit. For example, California offers a tax credit to qualifying first-time home buyers.

You could check with your state housing agency to find out what refunds, credits, or even grants are available to you. This is also where a real estate agent or mortgage loan officer could come in handy, pointing you in the right direction and answer any potential questions.

Other Loan Options for First-Time Home Buyers

Before you start looking at potential houses to buy, it may be a good idea to know how much you can qualify for. As stated above, in order to determine program eligibility, a lender will likely look at things like your credit history, existing debt, income and assets.

Pre-qualification on a loan doesn’t include a full analysis of your credit, income, or assets, but it can give you a rough idea of how much of a loan you qualify for and at what possible rates. Preapproval is different and involves verification of your credit, income, and assets. It’s a step closer to final loan approval. If you have loan pre-approval in hand, then you might be able to close more quickly on a house, which is a big help if the market is competitive.

It might be worth reviewing offers from a variety of lenders to find the mortgage with the best rate and terms for you. Lenders typically offer fixed or variable interest rates and each program can offer differing down payment requirements, terms, and fees.

Want to see what loan terms you may qualify for? Fill out a pre-qualification application online to view your possibilities. Learn more about borrowing a mortgage with SoFi.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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