What Is a First-Time Home Buyer?

Buying a home for the first time is exciting, but it can also feel overwhelming. Between saving for a down payment, learning about loan options and figuring out what programs you qualify for, there’s a lot to consider. The good news is that being considered a first-time home buyer comes with benefits that could make the process easier and more affordable.

What exactly does it mean to be a first-time home buyer, and how can that status help you take the next step toward homeownership? Let’s explore the details.

Who is considered a first-time home buyer?

You’re typically considered a first-time home buyer if you’re purchasing a main residence for yourself for the first time. But there are a few other ways you might qualify as a first-time home buyer.

According to the U.S. Department of Housing and Urban Development (HUD),¹ you may be considered a first-time home buyer if any of the following are true:

• You have never owned a home before
• You haven’t owned a home in the past three years
• You are a single parent or displaced homemaker who previously owned a home with a spouse but are now buying a home on your own
• You have only owned property that wasn’t affixed to a permanent foundation, such as a mobile home or RV

Different grants or programs may have their own definitions of a first-time home buyer. Always check the specific requirements for the program you’re interested in.

Benefits for first-time home buyers

When you’re considered a first-time home buyer, you may qualify for programs and benefits that make purchasing a home more achievable. Some of the common benefits include:

• Access to government-backed programs: State, local and some federal initiatives can open the door to more flexible qualifications. Many first-time home buyer benefits are available at the state level.²
• Down payment or closing cost assistance: As a first-time home buyer, you may be eligible for a first-time home buyer grant³ or a forgivable loan in some states,⁴ which could help cover a down payment or closing costs. A forgivable loan is a type of loan that doesn’t have to be repaid if you meet specific conditions, such as living in the home for a set number of years or using it as a primary residence.⁵
• Competitive interest rates: Some programs are structured to offer loans with interest rates that reduce the long-term cost of borrowing.⁶
• Educational resources: Home buyer classes and counseling can help you understand important real estate terms and understand your mortgage options. In some cases, classes may even be required, depending on your lender and the kinds of assistance programs you’re seeking.⁷

Common loan options for first-time home buyers

There are a number of loan programs that might be appealing if you’re buying a home for the first time. A home loan, or mortgage, is a secured loan, meaning it’s backed by collateral, in this case, your home. If a borrower fails to meet the terms of the loan, the lender has the right to take possession of the collateral to recover the amount owed.

Here are some common types of mortgage loans you might see as a first-time home buyer:

Federal Housing Administration (FHA) loans

Insured by the Federal Housing Administration, FHA loans allow down payments as low as 3.5 percent of the purchase price and have flexible credit requirements. You can use an FHA loan to buy a single-family home, condominium or townhome that meets FHA property standards. FHA loans require mortgage insurance, which adds to your monthly cost but makes buying more accessible if you don’t have perfect credit or much money in savings.⁸

Department of Veterans Affairs (VA) loans

If you’re a veteran, active-duty service member or surviving spouse, VA loans offer powerful benefits. Backed by the Department of Veterans Affairs, VA loans require no down payment and often have low interest rates.⁹ You can use a VA loan for a primary residence such as a single-family home, VA-approved condo or multi-unit property.¹⁰

U.S. Department of Agriculture (USDA) loans

Offered by the U.S. Department of Agriculture, USDA loans are available in eligible rural areas and don’t require a down payment. Income limits apply, and the home must be in a USDA-approved location.¹¹

Conventional loans

A conventional loan is a type of loan that is not backed by the government. Instead, conventional loans are offered by lenders like banks or credit unions. You can qualify for a conventional loan as a first-time home buyer, and some conventional loans may allow you to make a down payment as small as 3 percent.¹² Note that if you put down less than 20 percent, you’ll need to pay private mortgage insurance (PMI), which protects the lender in case you can’t repay the loan.¹³ Conventional loans may also have stricter credit or income requirements than government-backed loans.¹⁴

Other resources and assistance programs

Beyond home loans, there are a number of resources you can use as a first-time buyer to make your homeowning aspirations a reality. Take a look at assistance programs like:

• State and city first-time home buyer programs: Many states and cities have housing assistance programs geared toward first-time home buyers. Start with your state’s housing finance authority (HFA) to find out what options might be available to you.¹⁵
• HUD Good Neighbor Next Door: This government program offers a discount of 50% off the list price of a home in an area that’s being revitalized. To qualify, you don’t necessarily need to be a first-time home buyer, but you must be an eligible teacher, firefighter, law enforcement officer or EMT, and you must agree to stay in the home for three years.¹⁶ Homes are listed on the HUD website. If more than one person makes an offer, the program uses a random lottery to decide who can purchase the home.
• HomePath Ready Buyer Program: First-time home buyers can take advantage of this program from the Federal National Mortgage Association, also known as Fannie Mae. When you buy an eligible foreclosed home from Fannie Mae and take a homeownership course, you can get 3% of the purchase price in closing-cost assistance.¹⁷
• Nonprofit programs: Community-based organizations like Habitat for Humanity may offer down payment assistance or grants for lower-income home buyers, including first-time buyers.¹⁸
• Employer-sponsored programs: Some employers provide forgivable loans or grants to help with home purchases. Not all employers offer this benefit, and it usually comes with strings attached — like staying employed for a certain amount of time after accepting the money. Check with your employer to see if they offer any home-buying assistance, and if so, what the terms are.¹⁹

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Take the first step toward homeownership

Knowing what a first-time home buyer is — and whether you qualify — may unlock opportunities that make purchasing a home more achievable. With the right resources, programs, and preparation, you can move forward with confidence and open the door to homeownership.

Sources

1 https://archives.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm
2, 12, 15 https://www.bankrate.com/mortgages/first-time-homebuyer-loans-and-programs/
3 https://www.bankrate.com/mortgages/first-time-homebuyer-grants
4 https://www.nj.gov/dca/hmfa/consumers/homebuyers/
5 https://www.rocketmortgage.com/learn/silent-second-mortgage
6 https://hcr.ny.gov/low-interest-rate-program
7 https://www.bankrate.com/mortgages/first-time-homebuyer-class/
8 https://answers.hud.gov/FHA/s/article/How-can-FHA-help-me-buy-a-home
9 https://www.benefits.va.gov/homeloans/
10 https://www.benefits.va.gov/HOMELOANS/documents/docs/VA_Buyers_Guide.pdf
11 https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program#overview
13 https://www.bankrate.com/mortgages/basics-of-private-mortgage-insurance-pmi
14 https://www.experian.com/blogs/ask-experian/what-is-a-conventional-loan
16 https://www.hud.gov/helping-americans/good-neighbor
17 https://homepath.fanniemae.com/homebuyers/how-much-can-i-borrow
18 https://www.habitat.org/housing-help/apply/qualifications-for-habitat-homeownership
19 https://money.usnews.com/loans/mortgages/articles/eah-programs-how-an-employer-can-help-you-buy-a-home