Who’s Considered A Primary-Time Home Buyer |WORK|
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Down payment grants, tax credits, closing cost assistance, and other financial programs are typically not advertised, so be sure to ask around. Our first-time home buyer guide has tips to help you both discover and get prequalified for first-time home buyer loans and grants in your area.
Prices are on the rise, new construction for entry-level housing is lagging and inventory is squeezed. Add in stagnant wage growth, increased consumer debt including student loans and, and many hopeful homebuyers might feel iced out of the market altogether.
Additionally, the US Department of Housing and Urban Development (HUD) established benchmarks to help lenders identify first-time homebuyers for Federal Housing Administration (FHA) loan programs. According to HUD, a first-time homebuyer is an individual who meets the following criteria:
The importance of knowing if you qualify as a first-time homebuyer is the access you will have to programs offered through the Federal Housing Administration (FHA). Most are designed to help ease the cost or credit requirements of entry into homeownership while helping you to realize the American Dream of Homeownership. These loan programs may include one or more of the following: lower mortgage rates, lower closing costs, and loans for lower credit scores than required for conventional (non-FHA) loans, down-payment assistance programs.
First-time home buyer costs can seem overwhelming. But, luckily, there are several loan programs for assistance with your down payment and closing costs, including charitable and government-sponsored programs. Local and federal tax credits can lessen the bite, and educational programs can offer help at every step.
Fannie Mae offers first-time home buyers the chance to buy a foreclosed property for as little as 3% down with their HomePath® program. You can even apply for up to 3% of your closing costs back through the program as well. Fannie Mae homes sell in as-is condition, so you may have to repair a few things before your new place is move-in ready. However, closing cost assistance can help make it more possible to cover these expenses.
Some states also provide first-time homeowner assistance specifically for student loan borrowers. Home buyers who have a qualifying amount of student loans or have graduated recently could qualify for programs that reduce their mortgage rate, provide down payment assistance or offer specialty loans. Check your state website or consult a real estate professional to see what options are available to you.
Employer-sponsored programs are entirely up to the discretion of the employer and state sponsor if there is one. Many state-employer partnership programs also use the previously mentioned 3-year rule for deciding who is and who is not considered a first-time home buyer.
First-time home buyers have access to many grants, loans and financial help that can make buying a home easier. First-time buying assistance can include help with down payments and closing costs, tax credits or education. You might be able to get help from your local, state or federal government if you meet income standards.
Repeat 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.
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.
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 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.
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.
A second home is defined as a property that you own and live in for part of the time, but not all year long. Properties such as a vacation home, beach house, country home or pied-à-terre may be considered second homes.
A primary residence is usually the place where you spend the most time, and a second home is one you visit for some portion of the year. But why is this distinction so important and why do lenders and the IRS not allow second homes to be considered primary residences?
To be eligible first-time homebuyers, borrowers may not have owned a primary residence in the last three years unless the house is within a targeted area (as defined below) or if they are qualified veterans.
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There are a few types of loans that can't be used to buy a second home. For example, you can't use an FHA loan or a VA loan to purchase a second home. There are also some financial considerations that come into play when you are being evaluated for a second home mortgage. A notable example of this is that most lenders are stricter with the debt-to-income ratio of the buyer as well as their credit score. Affordability, location, and maintenance are three crucial things to consider when you're looking to buy a second home.
Buying a second home that will be used as a rental property comes with a number of advantages, most notable of which are the tax deductions. But on the flip side, it also means that a buyer will become a landlord and have certain responsibilities that will require time and energy. It is one thing having a second home that you only visit for yearly vacations, and it is an entirely different thing to have a second home that will be rented out.
Lenders usually charge buyers higher interest rates when they are borrowing mortgage money for an investment property that they plan to rent out and eventually sell for a profit. There's a reason for this: Lenders consider loans for these homes to be riskier. Because buyers aren't actually living in these homes, lenders believe that they might be more willing to walk away from them -- and their mortgage payments -- if they suffer a financial setback.
The higher interest rates provide some extra protection to lenders. Lenders will also require that buyers come up with a higher down payment -- usually at least 25 percent of a home's final sales price -- when they're borrowing for an investment property. Again, this comes down to protection. Lenders believe that buyers will be less likely to walk away from the loans on their investment properties if they've already invested more of their own money in these homes.
Down payments are another potential challenge for buyers purchasing second homes or investment properties. Mindy Jensen, community manager with real estate investing social network BiggerPockets, says that you might be able to purchase a second home with a down payment of as low as 10 percent of that home's final sales price. But most lenders will require that 25 percent down payment for investment properties, Jensen said.
"You don't rent any portion of it out for any amount of time," Jensen said. "It is solely for you to use. Perhaps you live in one of those cold, northern states, and purchase a second home in a warm, southern state to live in during the winter months. If you don't rent it out during the times you aren't there, that is considered a second home." 2b1af7f3a8