First-time home buyer qualifications: What to know

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.

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.

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) or 620 for a conventional loan.
• Debt-to-income ratio: Your DTI ratio 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 3% of the purchase price 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.

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.

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.

3. Pay down debt

If your credit score needs a boost, try improving your DTI ratio by paying down high-interest credit card debt first.

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 2 years of tax returns, W-2s, bank statements, and information on any additional assets.

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.

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 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 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 homebuyer 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.

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. Have a down payment saved and know what kind of mortgage you can afford. From there, you can 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 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.

The bottom line: First-time home buyer loans offer an affordable path to homeownership

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 initial mortgage approval with Rocket Mortgage today.