In the US real estate market, the term ‘first-time home buyer’ is quite common. However, most people don’t really understand what it means and the benefits it entails. Although the phrase may appear simple, government organisations and lenders may have more complex definitions than just “never owned a home before.” A first-time home buyer is someone who has not owned a primary residence in the last three years prior to purchasing a new home.
This phrase comes with a deeper understanding, like the key criteria, who is considered as first time home buyer, and the benefits. This blog is a detailed guide to understanding the key phrase and everything in between.
Let’s get started:
What Is A First-Time Homebuyer?
To put it in simple words, a first-time home buyer is one who has not owned any primary residence for the last three years. According to the US Department of Housing and Urban Development, a first-time buyer is:
- Someone who has not owned any primary home in the last three years.
- Someone who has never owned a principal residence, even if their partners have.
- Someone who is a single parent and previously owned a home with a spouse.
- Someone who is a homemaker who was uprooted and solely owned property with a spouse.
- A single owner of a primary dwelling that isn’t permanently attached to a permanent foundation (like a mobile home).
- Someone who has solely held real estate that does not adhere to state or municipal building rules and that cannot be repaired for less than the price of erecting a permanent structure.
The Primary Three-Year Rule
The primary rule of the three years is a key aspect of the federal definition. The three-year rule states that you can be regarded as a first-time buyer again if you haven’t bought a home within the last three years. Numerous federal programs, such as those supported by the Federal Housing Administration (FHA) and Fannie Mae, use this provision.
Other Qualifications For a First-Time Home Buyer
If you’re wondering who is considered as first-time home buyer and what qualifies you as one, here are some additional requirements. Apart from the three-year general rule, there are a few other aspects that qualify you as a first-time home buyer. These are:
- 43 percent or lower debt-to-income ratio
- A minimum of 620 credit score
- A down payment contribution that varies based on the lending program
- A purchasing price and an income that are within program parameters
- Purchasing a house in a particular state, county, or city
- Finishing a course on homebuyer education
Some Quality Benefits of First-Time Home Buyers
Reduced Down Payments
Lower down payments, often as little as 3% for conventional loans or 3.5% for FHA loans, are permitted under many programs designed for first-time buyers. For people who haven’t had years to accumulate a sizable chunk of money, this can enable them to become supporting first-time homeowners.
Assistance With The Down Payment And Closing Costs
Nonprofits and federal, state, and municipal organisations provide programs and assistance or low-interest loans to assist with closing fees and down payments. If you remain in the house for a specific number of years, several programs offer loans that can be forgiven.
Tax Advantages
Federal tax credits, such as the Mortgage Credit Certificate (MCC), which enables you to claim a portion of your mortgage program and interest as a tax credit, may be available to first-time purchasers buying your first home. Property taxes and mortgage interest are also frequently deductible from your taxable income.
Penalty-Free Withdrawals From Retirement Accounts
If the money is being used for a first home purchase, the IRS permits first-time buyers to take out up to $10,000 from an IRA without incurring the customary 10% early withdrawal penalty. This cap applies to both spouses in married couples, allowing a total of $20,000.
Particular Loan Assistance Programs
Here are some loan programs for first-time buyers:
- FHA Loans: Supported by the Federal Housing Administration, these loans are more lenient towards borrowers with poorer credit ratings and have smaller down payments. So, you can qualify for an FHA loan if you have a poor credit score.
- VA Loans: VA loans do not need a down payment or private mortgage insurance (PMI) for qualified veterans and active military personnel.
- USDA Loans: These loan grants and assistance may be available with no down payment for residences located in approved rural areas.
Who Meets the Eligibility Requirements?
Federal Criteria
- You’ve never owned a home in the previous three years.
- Meet the program’s income and purchase price restrictions.
- Meet the minimum credit score standards, which for FHA loans are typically between 580 and 620. This helps you qualify for affordable mortgages.
- Make the house your main residence.
Particular Situations
- Parents without a spouse who were once owners of a home with a former spouse.
- Homemakers who were displaced and lived alone with their spouse.
- Those who possessed property that was either non-permanent or non-compliant with the code.
What Is Permanent Foundation and Principal Residence?
A home that is firmly affixed to a permanent foundation system made of long-lasting materials like concrete, mortared masonry, or treated wood is referred to as having a permanent foundation. In order to provide anchorage against seismic or wind pressures, vertical and lateral stability, and appropriate load transmission to the rock or soil below, this foundation needs to be site-built and engineered.
The house needs to be fixed so that it cannot be relocated. This indicates that the house is supported by a permanent foundation in accordance with HUD (Department of Housing and Urban Development) and local building rules, and that wheels, axles, and towing tongues have been removed.
Manufactured houses need to be certified by a licensed professional engineer or architect who confirms that the foundation complies with HUD regulations to be considered real property (not personal property).
Why Does First-Time Homebuyer Status Matter Here?
A person who has only owned a primary property that is not permanently affixed to a permanent foundation—such as mobile homes or manufactured homes on wheels or jacks—still qualify as a first-time homebuyer, following HUD’s official definition. This implies:
When buying a typical home or a manufactured home that satisfies the requirements for a permanent foundation, you may still be regarded as a first-time homeowner even if you have previously owned a mobile or manufactured home that was not permanently attached to a permanent foundation.
Because a principal residence is not permanently affixed, they are regarded as personal property rather than real estate, and the owner has not owned a “principal residence” in the conventional sense.
First-Time Home Buyer Rule in Texas
Texas adheres to the federal three-year rule, which states that if you haven’t owned a home in the past three years, you are considered a first-time buyer. Even if they have previously owned, veterans and members of certain other groups may also be eligible.
Important Texas Initiatives
Texas Department of Housing and Community Affairs (TDHCA)
- 30-year fixed mortgage rates with down payment and closing cost assistance up to 5% of the loan amount are available from the Texas Department of Housing and Community Affairs (TDHCA).
- Limits on income (e.g., $74,500 to $101,600 for one or two persons; more for bigger parties).
- Purchase price caps (usually between $294,600 and $359,460).
- Credit score minimum for loan eligibility: 620
The Texas State Affordable Housing Corporation (TSAHC)
- Offers forgivable home loans and grants to help with down payments.
- Requires taking a course on homebuyer education.
- To link customers with appropriate programs, an eligibility quiz is available.
Nonprofit and Local Initiatives
- For first-time home buyer programs and payment assistance, numerous Texas counties and towns provide extra first-time homebuyer assistance, frequently with specific qualifying requirements.
Final Takeaway
We hope you finally found your answer to – who is considered as first time home buyer? Although the process of purchasing your home for the first time may seem complicated, the first step to gaining significant advantages is figuring out who is eligible to purchase a property for the first time and eligibility for various homebuyer programs. These programs are intended to increase the affordability and accessibility of homeownership, whether you live in Texas or another state in the union.
Check your eligibility for federal, state, and local programs first if you’re planning to buy a home. Consider speaking to a knowledgeable and experienced real estate agent who can make your home purchase process easier.
FAQs
Are There Any Special Mortgages For First-Time Home Buyers?
Yes, they get special mortgages for the first time that others usually don’t get. This includes Conventional 97, which is a 3% down payment conventional mortgage.
Does One Have To Be a US Citizen To Qualify As A First-Time Buyer?
Most programs require you to be an official citizen of the United States to be considered a first-time homebuyer.
What Is The Best Loan For First-Time Buyers?
The best loans to make buying a home easy for first-time buyers are usually FHA Loans, VA Loans, and USDA loans.
