From the mid-1990s up through 2008 (during my loan officer years), there was often no real advantage for First-Time Homebuyers (FTHBs) because the best loan programs did not require first-time homebuyer status.
But that has changed over the years, and now there are some huge advantages (and misconceptions) that I want to discuss.
1. The Most Common Definition Of A First-Time Homebuyer
Fannie Mae, Freddie Mac, and most lenders deem a first-time homebuyer to be anyone who has not owned a home for 3 years. A buyer could have owned 150 homes 3.5 years ago, but as long as he sold them all over 3 years ago, he’s still a first-time homebuyer today – subject to ALL of the advantages that come with it.
2. The Biggie: “Loan Level Price Adjustment” Waivers (No Interest Rate Adjustments)
This is the biggest benefit of all. There are 15 factors that impact everyone’s interest rate, but many of them do not apply to FTHBs when it comes to Fannie Mae and Freddie Mac financing. These factors include credit score, down payment percentage, and property type (condo vs. single-family).
3. Couples Get FTHB Status Even If Only One Is A First-Time Homebuyer
If Bob and Mary are married, and Mary owns 37 houses, and Bob has never owned a home – Bob and Mary still get first-time homebuyer status. I also hope Mary made Bob sign a prenup.
4. FHA
Unfortunately, FHA is like the honey badger, it don’t care… It does not care if you’re a first-time buyer, so there are no advantages. It also doesn’t care if you have low credit scores, very high debt ratios, and no cash (but that’s for another blog). In any case, many people mistakenly believe that FHA is ONLY for FTHBs, but FHA is for anyone. FHA, however, is often still the best option for many FTHBs because it is so flexible.
5. Can’t Own Rentals Or Be On Title To Any Residential Properties
We often have people ask if they can still be a first-time homebuyer even if they are on title to rental properties (but not on the loan) owned by family members or some other type of partnership. The answer is no. And yes, lenders can and do find out by doing database searches.
6. No Advantages For Jumbo And Non-QM
Jumbo and Non-QM lenders not only don’t offer first-time homebuyer advantages, but some of their programs actually exclude FTHBs – because they want to ensure there is sufficient homeownership and/or landlord experience.
7. 3% Down Conventional
Fannie and Freddie both offer 3% down loans that require first-time homebuyer status. However, if a borrower’s earnings are under 80% of the “Area Median Income,” they can own one other home and still take advantage of some of the first-time homebuyer credits – so there is some flexibility.
8. Down Payment Assistance And Grant Programs
Many, but not all, of these programs require first-time homebuyer status.
9. Income Limits Often Apply
If a first-time homebuyer makes too much money, she can sometimes lose first-time homebuyer benefits – depending on the loan program. For Fannie Mae and Freddie Mac, for example, income must be under 100% of Area Median Income levels, or 120% of Area Median Income levels in high-cost areas.
10. Special Loan Programs
Some lenders offer unique programs of their own, like 1% down, 3% down with no PMI, free lender-paid 2-1 buydowns, or very low rates for low-income neighborhoods that require first-time homebuyer status.
