First time home buyers are not necessarily buyers who are purchasing the first home they've ever owned. You can also qualify as a first time home buyer if you have not owned a home in the past three years. There are many state and federal programs available to assist first time buyers with down payments and closing costs. In addition, many programs offer interest rates that are the same or lower than market rates and are willing to work with buyers who have imperfect credit.
FHA Loans for First Time Buyers
The Federal Housing Administration (FHA) offers assistance to many first time home buyers nationwide. You do not have to be a first time homeowner to obtain an FHA loan, but FHA loans can be beneficial to those with no previous home ownership experience.
- Low Down Payments: First time home buyers often do not have a large down payment available. While most lenders prefer 20 percent down to buy a home, with FHA the down payment may be as low as 3.5 percent of the home's purchase price.
- Easier Credit Qualifications: Those with credit scores under 640 may still qualify for an FHA loan, which is becoming difficult to do with conventional loans. FHA loans require a minimum score of 580, but specific lenders may have more stringent credit qualifications.
The FHA also helps individuals qualify to purchase manufactured housing and aids seniors with reverse mortgages. Loan limits vary from state to state.
The FHA requires that you purchase mortgage insurance when your down payment is less than 20 percent. The mortgage insurance cost is 1.75 percent of your final loan amount on top of an annual premium that varies per the terms of your loan.
Qualifying for FHA Loans
To qualify for FHA home loan programs, you may need to meet special income and credit qualifications in addition to not having owned a home in the past three years.
- While it is be possible to qualify with a credit score as low as 580, you may not have any negative accounts placed on your credit within the past 12 months.
- There are stringent home inspection requirements for homes being purchased with a FHA loan.
- Special restrictions are in place for those who may have foreclosed on a property in the past.
For more information on the FHA loan programs available, including qualification requirements and available lenders, visit the U.S. Department of Housing and Urban Development website.
Housing Finance Authority Programs
Each state has its own Housing Finance Authority program for first time home buyers. In general, to qualify as a first time buyer for these state programs, you may either be purchasing your first home or have not been a home owner for the past three years, and you must attend home buyer education classes. Benefits of these programs vary by state, but may include:
- Low down payments
- Fixed interest rates
- Reduced credit requirements (Some states allow those with credit scores as low as 580 to obtain these loans.)
States are able to offer these programs by selling tax-exempt mortgage bonds to investors, which means that state tax dollars are not typically used to fund these programs. Contact your state Housing Finance Authority office to discover the benefits of your state's first time home buyer program and see if you qualify.
VA Loan Programs
The Department of Veteran's Affairs (VA) offers current and discharged military veterans with home loan benefits up to $417,000. While VA loans are not limited to first-time home buyers, they often have even more favorable terms than programs specific to people who have not owned a home in the last three years.
Your eligibility for the program may vary based on the times you served and the type of discharge you received. Per the Department of Veteran's Affairs, benefits of the VA loan program include:
- Low or zero down payment
- No monthly mortgage insurance requirement
- Low minimum credit score of 620
- No pre-payment penalties
- Assumable (Another person can assume responsibility for your VA loan if they meet credit eligibility requirements.)
Before you apply for a VA loan, you must obtain a Certificate of Eligibility (COE) from the VA. The VA recommends that military employees and veterans check their eligibility status and obtain a COE from the VA ebenefits.gov portal.
Review Your Options
If you're purchasing a home for the first time or you haven't owned a home in the past three years and are looking to purchase one, you could qualify as a first time home buyer and have access to a number of loan programs designed for people in your situation. Contact a lender in your area to verify that you qualify and to see which loan option is right for you.
