What is a First-Time Home Buyer? [Definition & Qualifications]

A first-time home buyer is a home buyer who hasn’t owned the home they’ve lived in within the most recent three years. 

First-time buyers make up 43% of the new home market. The government grants first-time home buyers access to tax credits and home-buying incentives that other home buyers can’t use.

First-time buyers also get 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 your options and how to maximize how much home you can afford.

What is the Government Definition of a First-Time Home Buyer?

The government defines a first-time home buyer as anyone who hasn’t owned their primary residence within the previous 3 years.

The three-year period for first-time home buyer eligibility is backward-looking, based on the upcoming purchase closing date. The mortgage application date does not affect eligibility.

First-time home buyers can include renters, children, single parents, displaced homemakers, and people living rent-free.

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

You and your spouse are first-time home buyers when you haven’t owned a home as a primary residence in the last three years, and your spouse has owned a home as a primary residence in the previous three years.

I am a divorced, single parent. I owned a home with my former spouse while we were married. It’s the only home I ever owned.

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

I owned a home with my former spouse while we were married. It’s the only home I ever owned. I’m going back into the workforce.

You are a first-time home buyer for this purchase because, by government definition, you qualify as a displaced homemaker.

I owned a home that I lived in more than three years ago. It’s an investment property for me now. I’ve been renting somewhere else for more than three years.

Whether 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 last 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 in the last 3 years.

I owned a mobile home previously.

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

Get pre-approved as a first-time home buyer now.

What Is a First-Generation Home Buyer?

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

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

Only first-generation home buyers can apply for The LIFT Act, which reduces 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 ever lived in foster care
• First-time home buyers whose parents lost a home to short sale or foreclosure
• First-time home buyers whose parents owned a home previously but are not currently

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 Advantages for First-Time Home Buyers?

First-time home buyers are privileged. 

• The IRS provides first-time home buyers with a tax advantage
• Local governments offer first-time buyers cash grants and incentives
• Mortgage agencies make low down payment loans for first-time buyers only

In addition, the U.S. House and Senate introduced eight separate bills since 2021 to make homeownership easier to attain for renters and to make the American Dream more affordable.

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

Rate discounts

The FHFA First-Time Home Buyer Mortgage Rate Discount program was announced in late 2022. Eligible first-time buyers get discounts of up to 1.75% in mortgage rate add-ons. Check your eligibility.

Tax benefits

First-time home buyers get privileged tax treatment. The IRS allows penalty-free withdrawals from an IRA or 401(k) to buy a first home; and tax incentives, such as first-time home buyer tax credits, deduct from your federal income tax liability. 

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

Cash grants and forgivable mortgages

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

First-time home buyer mortgage loans 

First-time home buyers get exclusive access to mortgage programs created for first-time buyers, such as the Conventional 97, a 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.

See all home loans for first-time buyers.

Get pre-approved for a mortgage today.

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Best Mortgages for First-time Home Buyers

First-time home buyers don’t need a 20 percent down payment to buy a home, and most first-time buyers put down far less.

According to the CFPB, the typical first-time home buyer puts down just five percent. 

Most first-time buyers use conventional mortgage financing backed by government groups Fannie Mae and Freddie Mac. Conventional mortgages include three 3-percent down mortgage programs – the Conventional 97, HomeReady, and Home Possible. 

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

Conventional 97

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

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

Check your eligibility for a Conventional 97 mortgage.

HomeReady

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

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

Check your eligibility for a HomeReady mortgage.

Home Possible

The Home Possible mortgage program is similar to HomeReady. Its features include subsidized interest rates, reduced insurance premiums, and relaxed eligibility standards.

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

Check your eligibility for a Home Possible mortgage.

FHA Mortgage

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

FHA loans are a catch-all for 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 a home’s purchase price at reduced rates with no mortgage insurance required.

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 below-market mortgage rates, discounted mortgage insurance, and relaxed approval standards.

The U.S. Department of Agriculture backs USDA mortgages.

Check your eligibility for a USDA mortgage.

Conforming Mortgage

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

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

Check your eligibility for a conforming mortgage.

Get pre-approved for a mortgage today.

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