First-time home buyer qualifications: What to know

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

While buying your first home can seem daunting, you may qualify for assistance programs, grants, and tax benefits to make homeownership more affordable. And in some cases, you may be considered a first-time home buyer even if you’ve previously owned a home.

Lenders have their own guidelines regarding risk assessment, the way loan programs are set up, income qualifications, and more as they try to set up their borrowers for success. This article will go over the programs available for first-time home buyers, who’s eligible, and what else you need to consider.

Who is considered a first-time home buyer?

First-time home buyers are people buying a primary residence for the first time. You also may be considered a first-time home buyer if:

• You haven’t owned a home in the past 3 years.
• You are a single parent who previously bought a home with a former spouse.
• You are a displaced homemaker who has only ever owned a home with a spouse.

There are also first-generation homeownership programs, but these aren’t the same. A first-generation buyer is someone whose parents or legal guardians have never owned a home. First-generation home buyer programs may not necessarily be first-time home buyer programs and vice versa.

First-time home buyer programs are defined by your own ownership history, while first-generation homeownership programs are based on your family or guardians.

Additional first-time home buyer qualifications

Here are some additional mortgage qualifications for first-time home buyers. Keep in mind, these will be dependent on the type of loan you choose and your financial situation.

• Credit score: First-time home buyers must have a minimum credit score of 580 for an FHA loan (500 if you make a 10% down payment).¹^,² Conforming conventional mortgages have no minimum credit score, but a variety of other risk factors are taken into account. VA loans have no minimum credit score, but at Rocket Mortgage, it’s 580.³
• Debt-to-income ratio: Your DTI ratio reveals what percentage of your monthly income goes toward debt payments to make sure you can comfortably handle the monthly payment. Most lenders look for a DTI ratio below 50%, depending on your loan and other factors.
• Down payment: You’ll also need a minimum down payment of 3% of the purchase price for a conventional loan or 3.5% for an FHA loan.⁴ VA loans are the only ones that typically have no down payment requirement.
• Employment history: Lenders also look for consistent income and 2 years of employment history. There are exceptions for those who have recently completed schooling.
• Income limits: Some programs have income limits, usually relative to the area where you’re looking to purchase.
• Occupancy requirements: It’s usually required that the home be your primary residence.
• Home buyer education courses: Typically required when all borrowers are first-time home buyers, these courses go over topics like budgeting, credit, and what to expect at closing.

Loans for first-time home buyers

Here are some popular loan programs available for first-time home buyers:

Rocket Mortgage^® doesn’t offer Fannie Mae 97% LTV Standard loans, Freddie Mac HomeOne loans, Fannie Mae HFA Preferred loans, or Freddie Mac HFA Advantage loans. However, we do offer Fannie Mae HomeReady and Freddie Mac Home Possible loans and can help you explore your options.

How to qualify for a first-time home buyer loan

Here’s how to qualify for a mortgage as a first-time home buyer.

1. Save up for a down payment

Most lenders want a down payment, though the exact amount will vary depending on your loan type. You may qualify for a mortgage with a down payment as low as 3% of the purchase price.

Down payment assistance could make up the gap if you don’t yet have the funds to afford the upfront cost, but you can afford the mortgage payment. This can come in the form of forgivable, deferred, or immediate second loans or as grants. There may be income limits attached.

The assistance may come from nonprofits, employers, lenders, local governments, or state housing finance agencies. You may have specific purchase price limits, occupancy requirements, credit score minimums, or home buyer education requirements to meet. Ask your lender what forms of assistance they accept.

2. Improve your credit score

You’ll qualify for the best rates and terms on your mortgage if you have good to excellent credit. Before applying for a mortgage, check your credit report and correct inaccurate information.

If your score isn’t where you would like it to be yet, there’s time to improve it before applying. Habits like paying bills on time, maintaining credit card balances of no more than 30% of your limit, and avoiding new debt you don’t need before applying will help.

3. Pay down debt

If your credit score needs a boost, try improving your DTI ratio by paying down debt. If you’re applying soon, attack the debt with the biggest monthly payments first. If buying is further off, you may choose to take on the debt that has the highest interest rate.

4. Gather the necessary documentation

Your mortgage lender will require a lot of documentation, so gathering this information ahead of time can make the process move more quickly. You’ll need W-2s, bank statements, 2 years of tax returns, and information on any additional assets. Have your two most recent pay stubs to prove your current income.

5. Find the right loan program

Consider which loan program best fits your situation. A conventional loan may be best if you have a down payment saved and a high credit score. An FHA loan might be a better fit for lower-income borrowers with less-than-ideal credit. You should consider programs based on not only your credit, but also your income and location.

6. Get preapproved

Preapproval is when a lender makes an offer to lend you up to a certain amount assuming all conditions are satisfied and the loan closes. In a preapproval, a lender does a credit check and reviews documentation you provide around your income, assets, and existing debts.

Preapproval is often confused with prequalification, but preapproval is stronger because it involves an actual credit check and review of your documents. Rocket Mortgage calls this Verified Approval.⁷

Not only does preapproval give you a budget to work from, but it signals sellers that they can take your offer seriously because you’ve done the legwork.

Benefits of being a first-time home buyer

Here are the biggest benefits of being a first-time home buyer:

• Low down payments: There are programs and grants available to make it easier for first-time home buyers to buy a house. It’s important to keep in mind that not all lenders accept all down payment assistance programs. It’s best to speak with a Home Loan Expert to see what program will be accepted.
• Closing cost assistance: First-time home buyers can also receive assistance paying their closing costs. You could receive a grant or forgivable loan with no monthly payments to use for closing costs. Speak to a Home Loan Expert to see what program may be accepted.
• Home buyer education programs: If you qualify for down payment or closing cost assistance, you’ll likely be required to take a home buyer education course. This may seem like a hassle, but these courses provide valuable information.
• Potential tax breaks: First-time home buyers may qualify for tax breaks. For example, a mortgage credit certificate allows you to claim a tax credit of up to $2,000 a year on your federal tax returns.
• Build equity: Once you’ve bought a home and begin paying your mortgage, you’ll start to build equity in your home. Building equity increases the amount of money you have in your home and your overall net worth.
• Reduced mortgage insurance costs: Some first-time home buyer programs come with reduced private mortgage insurance, which could lower your monthly payment.
• Personalized advising may be available: State and local housing finance agencies may provide guidance specific to your individual situation. This is in addition to potential down payment assistance and home buying classes.

FAQ

If you have additional questions about first-time home buyer qualifications, the following frequently asked questions may help.

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

Buying a home is a big step, but it can be done with the right preparation. Down payments start as low as 3%, and One+ allows you to put down 1% with a 2% lender credit. Having a credit score that’s 620 or better may help you qualify for the most possible programs.

How do I find first-time home buyer programs?

Every state provides a Housing Finance Agency to help low- and middle-income borrowers find affordable housing. Contact the HFA in your state to find out what options are available.

It’s also a good idea to work with a HUD-approved housing counselor. This individual can evaluate your situation and help you find programs that may be a good fit for you. Remember to keep your lender in the loop to make sure they’ll accept the program.

How much do first-time home buyers need for a down payment?

Down payment requirements vary depending on the loan program you choose, but you don’t need a 20% down payment to buy a home. A conforming conventional mortgage requires a down payment of at least 3%. If you qualify for a VA loan, you may be able to take out a mortgage with no down payment.

Can I qualify for a first-time home buyer loan if I’m paying off student loans?

Yes. You don’t need to be debt-free to qualify for a first-time home buyer loan. Your lender may require you to maintain a certain DTI ratio, but the type of loan isn’t important.

Are there income limits for first-time home buyer programs?

It depends on the program. While many first-time home buyer programs have income limits, others don’t, including Fannie Mae 97% LTV Standard loans and Freddie Mac HomeOne^® loans.

Can I qualify my partner isn’t a first-time home buyer?

While some programs require that both borrowers be first-time home buyers, others require it of only one client. Check with your lender. In all instances, the credit, debts, and incomes of all clients count for qualification.

The bottom line: Preparation and programs can help first-time home buyers qualify

If you’re a first-time home buyer or haven’t owned a primary residence in the past 3 years, you may qualify for state programs, grants, and federal loan programs. The more you educate yourself on how to qualify for a first-time home buyer loan, the easier the home buying process will be.

If you’re ready to get started, you can apply for preapproval with Rocket Mortgage today.

¹ Rocket Mortgage is not acting on behalf of FHA or HUD.

² To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

³ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁴ The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

⁵ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.

⁶ Client will receive a 1 point (1.000) loan level price adjustment (LLPA) credit on HomeReady and Home Possible purchase loans locked on or after January 2, 2024. One point (1.000) is equal to 1% of the loan amount. Minimum credit amount will be $2,000. Maximum loan amount is $350,000. Offer is not available with any other discounts or promotions. Offer cannot be retroactively applied to previously closed loans or loans already in process; offer is not transferable. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply. This is not a commitment to lend.

⁷ Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.