First-Time Home Buyer Benefits: How to Qualify

Weird but true: Qualifying as a first-time home buyer doesn't mean you've never owned a house. First-time home buyer perks, such as low down payment loans or closing cost assistance, can be worth a lot of money, so it pays to know if you qualify.

First, do some digging. Many groups offer benefits for first-time home buyers at local, state and national levels. Then, look into the specifics. Each group sets its own qualifications. In many cases, you can qualify as a first-time home buyer if you haven’t owned your principal residence in the past three years.

Just starting your research? Here’s your how-to guide.

When are you considered a first-time home buyer?

You are typically considered eligible to apply for first-time home buyer loans and benefits if you haven't owned your principal residence within the past three years. In general, you could be considered a first-time home buyer if:

• You’ve never owned a home.

• You’ve previously owned a home, but for the past three years (or more), you’ve been renting or living in a place someone else owns.

• You owned a home with a spouse but now are buying a home on your own.

Some first-time home buyer assistance programs are even more lenient, offering financial aid in specific areas targeted for redevelopment, even to repeat buyers.

If you’re not sure where to start, lean on your homebuying squad. Ask your financial advisor or housing counselor to recommend programs you might qualify for. Your real estate agent or mortgage loan officer might have suggestions, too.

» MORE: How much house can you afford?

Who offers first-time home buyer assistance?

Many groups offer benefits and programs for first-time home buyers. They include:

• State governments, including housing finance agencies (HFAs).

• Local governments, such as housing and community development authorities.

• Nonprofit organizations.

• Banks, credit unions and other mortgage lenders.

• Some employers (check with your benefits department or labor union). 

Each group has its own menu of offerings, so shop around. You might be eligible for certain first-time home buyer programs but not others.

First-time home buyer benefits and programs

Common benefits and programs for first-time home buyers include:

• Low- or no-down-payment mortgages.

• Down payment assistance.

• Closing cost assistance.

• Federal tax credits, such as a mortgage credit certificate (MCC).

If you qualify for multiple grants or programs, see if you can combine them to help stretch your dollar to afford your first home.

» MORE: Best mortgage lenders for first-time home buyers

How to qualify for first-time home buyer benefits

Approval standards vary by program and location. For example, some first-time home buyer programs might have rules that limit a buyer’s income or the purchase price of the home. Other homebuying assistance programs, such as Good Neighbor Next Door, are designed for those in helping professions like teachers, emergency responders and law enforcement officers.

You might be required to complete a first-time home buyer class to qualify for a grant, loan or down payment/closing cost assistance. These classes are designed to help you navigate the homebuying process and can be a good idea to take whether they're mandatory or not.

Many mortgage lenders offer some type of first-time home buyer loan program. However, if you're looking to snag a loan tied to assistance provided by a local or state housing agency, you'll need to use an agency-authorized lender.

Look for an approved-lenders list on your state housing agency's website.

Is there an income limit to qualify as a first-time home buyer?

Some, but not all, first-time home buyer assistance programs have income limits. In these cases, your income may be benchmarked to Area Median Income (AMI) thresholds for low- and moderate-income households. Income limits often come into play when you are applying for:

• Grants or loans through many state housing finance authorities.

• Mortgages for borrowers in rural areas, backed by the U.S. Department of Agriculture (USDA).

• Low-down-payment conventional loans, such as HomeReady from Fannie Mae or Home Possible from Freddie Mac.

Whether or not a program has an income limit, your income is always a factor when mortgage lenders determine how much you can borrow. Lenders, even those working with loan programs authorized by a state housing agency, will likely consider your debt-to-income ratio when determining if you qualify.

First-time home buyer programs, such as down payment assistance, can be a helpful nudge to help you afford your first home, but ultimately, you have to know your budget and stick to it for homeownership to be sustainable in the long term.

» MORE: How much money do you need to buy a house?