What is a first-time home buyer? [Definition & Qualifications]

A first-time home buyer is a home buyer who does not own a home they have lived in for the most recent three years.

First-time buyers make up 43% of the new home market. The government offers tax credits and home buying incentives to first-time home buyers that other home buyers cannot use.

First-time buyers gain access to mortgage programs unavailable to the general public.

Whether buying your first home – or buying your first home in more than three years – it’s good to know what your options are and how much home you can afford.

Who qualifies as a first time home buyer?

The government defines a first-time home buyer as someone who has not owned their primary residence within the last 3 years.

Based on the upcoming purchase closing date, there is a backward looking period of three years for first time home buyer eligibility. Mortgage application date does not affect eligibility.

First-time home buyers may include renters, children, single parents, displaced housewives and people living without rent.

I am buying a house with my spouse. My spouse is not a first time home buyer.

You and your spouse are buying a home for the first time, you have not owned the home as a primary residence in the past three years, and your spouse has owned the home as a primary residence in the past three years.

I am a divorced, single parent. I had a house with my ex-husband when we were married. This is the only house I’ve ever owned.

You are a first time home buyer for this purchase as you are buying the home as a single parent, and you only owned the home after marrying your ex-spouse.

I had a house with my ex-husband when we were married. This is the only house I’ve ever owned. I’m going back to the workforce.

You are a first time home buyer for this purchase because, as per the government’s definition, you qualify as a displaced homemaker.

I had a house in which I lived three years ago. It is now an investment property for me. I have been living on rent elsewhere for more than three years.

Whether or not you are a first-time home buyer in this scenario depends on your mortgage type.

For an FHA mortgage, you are a first-time home buyer for this purchase because you have not owned your primary residence within the past 36 months.

For a conventional mortgage backed by Fannie Mae or Freddie Mac, you are not a first-time home buyer because you have owned a home within the last 3 years.

I’ve had a mobile home before.

You are a first-time home buyer because the mobile home you owned was not securely attached to a permanent foundation.

DASH Act definition of first time home buyer

The DASH Act is a home affordability bill that gives first-time buyers a $15,000 tax credit. The DASH Act defines “first-time home buyer” differently from other first-time buyer grants and programs, however.

In the DASH Act, a first-time home buyer is defined as someone who has never owned a home. There is no provision for buyers who owned the house more than 36 months ago, or buyers who owned the house jointly with their spouse.

The DASH Act has not yet passed into law.

Click to get pre-approved to buy a home.

When are you considered a first time home buyer again?

If you have not owned a home in the last three years, you are again considered a first-time home buyer. Hence, you may many times be a first time buyer.

First time buyers are treated the same as first time buyers. A person who owned their home and then moved out three or more years ago qualifies as a first-time buyer and can access first-time buyer grants, tax credits and down payment assistance.

In addition, the government also makes four exceptions for previous homeowners to qualify as first-time home buyers:

1. single parents who only had a home with their ex-spouse
2. Adults who left the workforce for several years without pay to care for a family
3. Owners of mobile homes on foundations but not permanently attached
4. Owners of homes that fail safety tests whose repair costs exceed the value of the home

Click here to requalify as a first time home buyer.

What is a first generation home buyer?

A first-generation home buyer is a first-time home buyer whose parents do not currently own a home and whose parents never owned a home.

First-generation home buyers get special access to the Downpayment for Equity Act, a $25,000 cash grant program for first-time buyers.

Only first-generation home buyers can apply for the LIFT Act, which lowers interest rates for eligible home buyers.

Special considerations for first generation home buyers

Some programs have an alternate definition for a first generation home buyer.

When Congress proposed its Housing Is Infrastructure Act and its Build Back Better Act, first-generation home buyers included:

• First time home buyers who were once in foster care
• First-time home buyers whose parents lost their home due to a short sale or foreclosure
• First time home buyers whose parents previously owned a home but currently do not

All first generation home buyers are first time home buyers. Not all first time home buyers are first generation home buyers.

Get pre-approved for a first time home buyer mortgage.

What are the benefits for first time home buyers?

First time home buyers are privileged.

• IRS offers tax benefits to first time home buyers
• Local governments offer cash grants and incentives to first time buyers
• Mortgage agencies only offer low downpayment loans for first time buyers.

In addition, the US House and Senate introduced several bills from 2021 onwards to make home ownership easier for renters and the American Dream more affordable.

Homeownership builds communities and household wealth. The government supports renters who want to be owners.

rate discount

The FHFA First-Time Home Buyer Mortgage Rate Discount Program was announced through the end of 2022. Eligible first time buyers get a discount of up to 1.75% on the mortgage rate add-on. Check your eligibility.

tax benefits

First time home buyers get special treatment. The IRS allows penalty-free withdrawals from an IRA or 401(k) to buy a first home; And tax incentives, such as the first-time home buyer tax credit, are deducted from your federal income tax liability.

In 2009, the government gave an $8,000 tax credit to first-time buyers. Congress is proposing a $15,000 tax credit retroactive to December 31, 2020, for first-time home buyers.

cash grants and forgivable mortgages

First-time home buyers can apply for cash grants from local governments for the down payment on a home or request a forgivable mortgage to replace the down payment. Cash grants are up to $25,000. Forgivable mortgages are up to five percent of the purchase price.

Mortgage loan for first time home buyer

First-time home buyers get special access to mortgage programs designed for first-time buyers, such as the traditional 97, three percent down mortgage loan. First-time buyers also get discounted interest rates on HomeReady and Home Possible from Fannie Mae and Freddie Mac, respectively.

View all home loans for first time buyers.

Best mortgage for first time home buyers

First-time home buyers do not need a 20 percent down payment to buy a home, and most first-time home buyers make lower down payments.

According to the CFPB, first-time home buyers typically put down just five percent.

Most first-time buyers use traditional mortgage financing backed by government conglomerates Fannie Mae and Freddie Mac. Traditional Mortgage includes three 3-percent down mortgage programs – Traditional 97, HomeReady and Home Possible.

The next most popular first-time home buyer mortgage is the FHA-backed mortgage.

traditional 97

The Conventional 97 is a three-percent mortgage loan backed by Fannie Mae or Freddie Mac. The loan gets denominated for the remaining 97% of the loan balance after the down payment.

The traditional 97 is only available to first-time home buyers as an exception to Fannie Mae and Freddie Mac’s standard minimum down payment of five percent.

Check your eligibility for a traditional 97 mortgage.

home ready

HomeReady is a subsidized mortgage loan for first time home buyers with low to moderate income. It offers lower mortgage rates and less insurance than other mortgages.

HomeReady mortgages have relaxed approval standards to make homeownership more attainable and less expensive for first-time buyers.

Check your eligibility for HomeReady Mortgage.

home possible

The Home Possible mortgage program is similar to HomeReady. Its features include concessional interest rates, reduced insurance premium and relaxed eligibility criteria.

Home Potential is limited to low and moderate income households and buyers with average or better credit scores.

Check your eligibility for Home Prospective Mortgage.

FHA mortgage

FHA mortgages are the original low payment mortgages. Since 1934, the Federal Housing Administration has insured millions of renters looking to buy their first homes. FHA mortgages allow a credit score of 500 or higher and require a minimum down payment of 3.5 percent.

FHA loans are a catch-all when other, more favorable mortgage loans don’t apply.

Check your eligibility for an FHA mortgage.

VA mortgage

Backed by the Department of Veterans Affairs, VA mortgages are no down payment mortgage loans for veterans, active military and surviving spouses.

Buyers can finance 100% of the purchase price of the home at low rates without the need for any mortgage insurance.

Check your eligibility for a VA mortgage.

usda mortgage

USDA mortgages are 100% mortgage loans available to home buyers in less dense parts of the country, including many suburban and rural neighborhoods. Eligible home buyers can access mortgage rates lower than the market, discounted mortgage insurance, and relaxed approval standards.

The US Department of Agriculture supports the USDA mortgage.

Check your eligibility for a USDA mortgage.

conforming mortgage

Conforming mortgages are the most common mortgage loan type for first-time home buyers. Conforming mortgages are so named because they conform to the mortgage guidelines of Fannie Mae and Freddie Mac.

Conforming mortgages are best for home buyers with at least a five percent down payment and an average credit score or better.

Check your eligibility for a conforming mortgage.

To know the statistics of first time home buyers in 2023

• The typical first time home buyer was 33.
• 45 per cent home buyers were first time home buyers
• The typical first time home buyer paid $252,000 for their home
• The typical first time home buyer puts down a 7 percent down payment.
• The typical first time buyer home was 1,640 square feet

Source: NAR, New York Fed