We have had young first-time homebuyer tech employees come to us wanting to buy $2 million+ homes with $400,000 to $500,000 down payments – and there were no major issues.
They were young couples with household incomes in excess of $400,000 and they had just cashed out their stock options.
As an aside, we also learned that those young tech employees often know everything and that they don’t have to be courteous, appreciative, or friendly… (shockingly, very wealthy young people can be difficult to work with on occasion 😊).
I share the above anecdote because a savvy agent asked us yesterday if there are any limits to what a first-time homebuyer can buy.
And – our answer was “no” … for the most part.
The standard definition for a first-time homebuyer, as most readers know, is anyone who has not owned a home for three or more years.
And there actually are some limits to what they can buy, but not if the buyers can make a large down payment and prove that they have been paying rent on time.
Income Limits
If first-time buyers are putting down 5% or more, there are no income limits. If they want to take advantage of a 3% down payment, there are no income limits IF they’re targeting a standard Fannie Mae or Freddie Mac program. But, income is limited to 80% of the Area Median Income limits if they target a special first-time homebuyer program like “HomeReady” or “Home Possible” that offers exceptionally low interest and private mortgage insurance rates.
FHA
FHA loans, requiring only 3.5% down, are not just for first-time homebuyers, as anyone can take advantage of FHA financing – including wealthy first-time buyers, as the FHA loan limits are now well over $1 million in many areas. FHA financing has NO income limits too.
Interest Rates
Fannie Mae and Freddie Mac now waive or ignore all of the factors that can impact someone’s interest rate for first-time homebuyers – as long as their income is under 100% of the Area Median Income, or under 120% of the Area Median Income in high-cost areas. These factors include credit scores, down payment percentages, and property types (condo vs. SFR), and they can easily add well over 1% to the rate of a non-first-time homebuyer. Hence, if a first-time homebuyer wants to avail herself of these rate advantages, she will need to ensure her loan amount is below the conforming loan limit for the area.
Rental History
Interestingly, this factor often proves to be the one sticking point for our well-heeled first-timers. Some jumbo lenders want to see a 12 or even a 24-month history of on-time rent payments. This can be more difficult than it might seem though – if buyers were previously living with family members; living in a family-owned property, and not paying rent consistently or at all; or paying inconsistent amounts via a payment app like Venmo. Hence, this is one of the first things we ask for when first-time buyers are looking for jumbo financing.
