When Are You Considered a First-Time Home Buyer Again?

Finding the perfect home is challenging enough in a period when higher interest rates mean fewer buyers and fewer sellers.

Fortunately, there are programs designed to ease the pain, especially for first-time homebuyers, a category that includes more people than you think.

Couples or individuals purchasing a home for the first time ever fit the category of first-time homebuyer. But if you haven’t owned property that serves as your primary residence in the last three years, you too qualify as a first-time homebuyer.

The makes you a candidate to tap into first-time homebuyer programs that help with down payments and courses that explain the many responsibilities that go with owning your own home. These programs are mainly funded by federal, state, and local governments, but there also are nonprofits, banks and credit unions that participate.

The benefits of these programs to first-time homebuyers are many, says Charlene Rose, Director of Housing for InCharge Debt Solutions.

“First-time homebuyer programs aim to empower and guide individuals through the intricacies of purchasing their first home, fostering a smoother and more affordable transition into homeownership,” Rose said. “These programs offer a range of valuable benefits to individuals. One significant advantage is the provision of down payment assistance, easing the financial burden associated with the initial upfront costs and making the prospect of purchasing a home more feasible.

“Many people are doubtful they can qualify for a mortgage but once they go through all the available information on programs designed to help them, they realize they can become homeowners.”

Timeframe for Qualifying as a First-Time Home Buyer Again

Obviously, if you have never owned a home, you qualify as a “first time homebuyer.”

However, you can still be eligible for first-time homebuyer programs if you haven’t owned a home for three years after selling or transferring ownership of a previous residence.

There are exceptions even outside those criteria to make it easier for people facing special circumstances. to get into the housing market.

Special exceptions to qualify as a first-time homebuyer within the three year waiting period include:

• You’re a stay-at-home or single parent who co-owned a home with a spouse.
• You owned a primary residence that was detached (think mobile home).
• You owned a home that didn’t comply with building codes and couldn’t be brought into compliance for less than the cost of constructing a permanent structure.

What Does Previous Homeownership Mean?

Let’s say you’ve been renting since you graduated high school or college and want to get into the housing market. Congratulations. You qualify for some level of first-time homebuyer assistance.

The definition of “previous home ownership” doesn’t apply to renters or young adults getting married and moving out of their childhood home into their first house.

Previous home ownership is a term applicable to those who’ve owned a primary residence or investment property. Having done so doesn’t disqualify you as a first-time home buyer if you haven’t owned it in the last three years.

For instance, you bought your first house, got a job offer in a part of the country where the cost of living is significantly higher and you’re now renting (hopefully not in a building where you have to share a bathroom.) Later, you move back home and want to own a home again. You qualify as a first-time home buyer if the gap between was three years or longer.

The same goes for individuals who own an investment property they haven’t used as a primary residence for the past three years.

Such cases are just one reason why buyers with first-time status make up 45% of the home purchase market.

Other Eligibility Criteria for First-Time Home Buyers

First-time homebuyer programs and certain loans may require individuals to meet criteria involving employment history, income, legal residency status and homebuyer education classes:

• Debt-to-Income Ratio. Lenders typically assess a borrower’s ability to manage monthly mortgage payments by considering how much they make and how much debt they owe.
• Employment history. Lenders may look at the stability and consistency of the borrower’s job status. There may not be a strict minimum number of years required but a stable employment history can enhance eligibility.
• Income requirements. Again, there’s typically not a minimum standard to meet. Eligibility determinations are made based on the size of the loan and the amount of income.
• Property requirements. Certain programs may have specific property eligibility criteria, such as a home’s condition or location.
• Legal residency status. Only U.S. citizens or legal residents can qualify for certain programs.
• Completion of education classes. Most programs require borrowers to complete homebuyer education courses to apply for down payment assistance. Topics in these classes include budgeting, the home-buying process, homeownership responsibilities, the closing process, insurance requirements and the home inspections.

Documentation and Verification for First-Time Homebuyers

As you might expect, the documentation needed to verify first-time homebuyer status goes beyond a nice smile and a birth certificate.

Generally speaking, income verification requires recent pay stubs, W-2’s for the last two years and address records for the last two years. Asset verification is also part of the process and includes recent bank statements that show you have the money for the down payment.

The goal of first-time homebuyer programs is simple: helping people get into the housing market who might not otherwise have the means to do so.

The process? That can be complicated.

The need for accuracy and honesty in providing information can’t be overstated, which is why it’s so important to seek counseling services to reap the benefits of first-time homebuyer programs.

“We offer one-on-one counseling that can significantly benefit individuals aspiring to become mortgage ready,” Rose said of InCharge Debt Solutions, a HUD sponsored counseling agency. “Through personalized sessions, clients can receive tailored advice and guidance based on their specific financial situation.”

Resources and Assistance Programs

Realtors can provide guidance on first-time homebuyer programs. But the required education classes to qualify as a first-time homebuyer provide the best information on local resources, workshops, and counseling services.

A list of the Department of Housing and Urban Development counseling agencies is available on the HUD website.

There are many other recommended resources for first-time homebuyers:

• Community programs. Assistance is available through local government agencies, housing authorities or community development organizations.
• Online platforms. Websites such as Homeownership.org and MyMoney.gov offer articles and tools.
• National and Local Nonprofits. Workshops offered by organizations such as NeighborWorks America and local Habitat for Humanity chapters.
• Financial Institutions. Local banks, credit unions, and mortgage lenders sometimes offer homebuyer education workshops.

Homebuyer education courses that cover topics such as budgeting and credit management are valuable and required.

Workshops, seminars, and online platforms such as Reddit can be valuable for asking questions about the homebuying process.

People wanting to get into the housing market as first-time homebuyers should explore all avenues of assistance – VA Loans, FHA loans and USDA loans – and seek professional guidance if needed.

The housing market need not be as daunting as it seems.