You’re probably aware that first time homebuyers get access to special loan programs and assistant programs that current homeowners do not. However, there are a lot of misconceptions around who actually qualifies as a first time homebuyer.
You’re probably thinking “anyone who has not purchased a home before, duh…”
But that’s not always the case!
The general rule of thumb is that a first time homebuyer is anyone who hasn’t owned a home in the past three years!
You could have bought and sold dozens of properties over the years, but as along as you current do not own a home and haven’t had any ownership interest in a home within the past three years you can enjoy the first time homeowner perks!
What are the benefits of being a first time homebuyer?
If you’re purchasing your very first home, or qualify as a first time homebuyer by not owning a home in the past three years, there are many benefits you can take advantage of.
Down payment assistant programs (DPA’s)
This is one of the more well known benefits of being a first time homebuyer. Down payment assistant programs can really be beneficial for the upfront costs of purchasing a home, including the down payment and sometimes even closing costs.
Requirements for DPA programs vary from program to program, but most DPA programs accept first time homebuyers with moderate to low income.
It’s important to know the different between the three types of down payment assistant programs:
- Low interest loan: You’ll pay this back in-line with your mortgage
- Zero interest / forgivable loan: No monthly payments and your loan is forgiven if you own the home for a certain number of years
- Home buyer grant: This is effectively a cash gift with no strings attached
There are countless DPA programs across the US, be sure to work closely with your loan officer to find the best one for your specific scenario. It’s important to note that each DPA program is independent and has their own ruleset, while some programs allow anyone to apply, many require you to be a first time homebuyer.
Is it easier to get approved as a first time homebuyer?
You still need to be “mortgage ready” in the sense that mortgage lenders need to know your ability to make your mortgage payment every month. You’ll go through the same underwriting process as a non first time homebuyer.
Lenders will look for the following criteria while determining your loan eligibility:
- Credit score: The higher score you have, the more loan options you’ll have – and the lower your interest rate will be. While having good credit is preferred, there are plenty of programs for fair and even poor credit.
- Debt-to-income ratio: Your DTI compares how much you owe each month to how much you earn. This takes into account car payments, minimum credit card payments, housing costs(for the new home), and even things like child support and alimony.
- Down payment: The bigger your down payment, the more loan options you’ll likely be offered. You’ll typically be required to pay mortgage insurance if you put down less than 20%, but there are many loans that allow down payments as low as 3% or 3.5%. If you qualify for a USDA or VA loan you may be entitled to a 0% down loan.
- Income and job history: Lenders will need to see you have the ability to pay the mortgage back with a strong work history with little to no unexplainable gaps.
Best mortgage program for first time homebuyers
Many first time homebuyers think they need to save up to put 20% down on their home, which discourages many would be homeowners.
There are advantages of putting 20% down such as no private mortgage insurance (PMI), and a lower payment. It’s important to remember you can also refinance down the road to a new loan with out mortgage insurance once you have 20% equity in your home.
So why not go with a low-down payment mortgage first? You can put as little as 3% down on a conventional mortgage!
If you’re considering purchasing your first home, contact a loan officer to get started.
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