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First-Time Home Buyer Qualifications: What To Know

February 22, 2024 6-minute read

Author: Jamie Johnson

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Being a first-time home buyer can be challenging since there are so many different steps that go into the home buying process. But as a first-time home buyer, you may qualify for programs, grants, and tax benefits that could 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.

Understanding the first-time home buyer requirements and programs available will ensure you go into the mortgage application process prepared.

Who Is Considered A First-Time Home Buyer?

First-time home buyers are individuals who are buying a primary residence for the first time. There are many special programs and grants available to help make the home buying process more affordable for first-time home buyers.

You may also be considered a first-time home buyer if you haven’t owned a home in the last 3 years. So, under this definition, previous homeowners can be classified as a first-time home buyer again after enough time has passed.

When Do You Qualify As A First-Time Home Buyer Again?

Many people don’t realize that they may still be considered a first-time home buyer even if they’re previous homeowners. For example, you may be considered a first-time home buyer if you haven’t owned a primary residence in the last 3 years.

You may also qualify as a first-time home buyer if you’re a single parent who previously bought a home with a former spouse. You may also qualify if you’re a displaced homemaker who has only ever owned a home with a spouse.

Get approved to buy a home.

And see how much down payment assistance you may need.

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 or 620 for a conventional loan.

  • Debt-to-income ratio (DTI): Your debt-to-income ratio (DTI) considers what percentage of your monthly income goes toward debt payments. 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 as little as 3% for a conventional loan or 3.5% for an FHA loan.

  • Employment history: Lenders also look for consistent income and 2 years of employment history.

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 purchase a house. For example, you could qualify for a low down payment or receive down payment assistance. It’s important to keep in mind that not all lenders accept all down payment assistance programs. It’s best to speak with a 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 put toward your closing costs. Speak to a 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 mandatory homebuyer education course. This may seem like a hassle, but these courses provide valuable information that can help you on your home buying journey.

  • Potential tax breaks: First-time home buyers may qualify for certain tax breaks. For example, a mortgage credit certificate allows you to deduct up to $2,000 annually from your federal tax returns.

  • Build equity: Once you’ve bought a home and begin making your monthly mortgage payments, 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.

Loans For First-Time Home Buyers

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

Loan

Who Qualifies?

Minimum Down Payment

Other Qualifications

Fannie Mae 97% LTV Standard loans

First-time home buyers

3%

Mandatory home buyer education course for at least one borrower

Fannie Mae HomeReady loans

First-time or repeat home buyers

3%

Mandatory home buyer education course for first-time home buyers; certain income restrictions

Freddie Mac Home Possible loans

First-time home buyers, retirees, very low-income borrowers

3%

Income is limited to 80% of Area Median Income (AMI)

Freddie Mac HomeOne loans

First-time home buyers

3%

Mandatory home buyer education course for first-time home buyers

Fannie Mae HFA Preferred loans

Low to moderate income buyers (no first-time home buyer requirement)

3%

A borrower’s total qualifying income can’t exceed the limits set by the Selling Guide for HomeReady or the FHA

Freddie Mac HFA Advantage loans

First-time home buyers or borrowers who qualify for FHA homeownership programs

3%

Mandatory home buyer education course for first-time home buyers; certain income restrictions

Rocket Mortgage® does not offer Fannie Mae 97% LTV Standard loans, Freddie Mac HomeOne loans, Fannie Mae HFA Preferred loans or Freddie Mac HFA Advantage loans.

How To Qualify For A First-Time Home Buyer Loan

Applying for a mortgage as a first-time home buyer can be overwhelming, but there are steps you can take to improve your odds of approval. Here’s how to qualify for a mortgage as a first-time home buyer: 

  • Save up for a down payment: Most lenders want some type of down payment, though the exact requirements will vary depending on your loan program. You may qualify for a mortgage with a down payment as low as 3%.

  • 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, it’s a good idea to check your credit report and look for any inaccurate information.

  • Pay down debt: If your credit score is lower than you would like, one way to raise it is by improving your debt-to-income (DTI) ratio. Your DTI ratio shows the percentage of your monthly income going toward debt payments. Focus on paying down any high-interest credit card debt first.

  • Gather the necessary documentation: Your mortgage lender will require a lot of documentation, and gathering this information ahead of time can make the application process move more quickly. You’ll need to provide 2 years of tax returns and W-2s, bank statements and information on any additional assets.

  • Find the right loan program: Finally, you want to consider which loan program is the best fit for your situation. If you have a down payment saved up and a high credit score, a conventional loan may be the best option for you. In comparison, lower-income borrowers with less-than-ideal credit may be a good fit for an FHA loan.

Calculate how much house you can afford.

Use our quick and easy Home Affordability Calculator.

FAQs About First-Time Home Buyer Qualifications

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?

There’s a lot of work that goes into qualifying for a mortgage, but with the right resources and preparation, it can be done. Start by making sure you’re financially ready to apply for a mortgage — that you have a down payment saved and you know what kind of mortgage you can afford. From there, you can take steps to find the right lender and loan program for your situation.

How do I find first-time home buyer programs?

Every state provides a Housing Finance Agency (HFA) 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 an 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?

The down payment requirements will vary depending on the loan program you choose, but you don’t need a 20% down payment to purchase a home. Many lenders will approve you for a conventional mortgage with a minimum down payment of 3%. However, if you qualify for a VA, you may be able to take out a mortgage with 0% down.

The Bottom Line

If you’re a first-time home buyer or haven’t owned a primary residence in the last 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 initial mortgage approval with Rocket Mortgage today.

Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.