The term “first-time homebuyer” could easily mean someone who is buying a home for the first time. But the FHA has a broader definition to include those purchasing their homes for the first time and more. This definition is what we shall discuss below and examine why FHA loans are a fit for the first-time homebuyer.
FHA Defines ‘First-Time Homebuyer’
It’s a top priority for the FHA to serve homebuyers who are purchasing their first home. To keep track of this number and ensure that these buyers are properly identified, the FHA/HUD comes up with what constitutes a first-time homebuyer.
Per the FHA, you are a first-time homebuyer if you meet any of these criteria:
1. You do not own a principal residence within a three-year period that ends on the date you purchased the home. For couples, if one spouse has been a homeowner and the other has not owned a home, then both can be deemed first-time homebuyers.
2. You are a single parent who previously owned a home with a former spouse during your marriage.
3. You are a displaced homemaker whose previous experience in owning a home is with your spouse. By displaced homemaker, you are providing unpaid services to your family members and:
- dependent on another family member’s income but no longer supported by that income,
- a dependent spouse of an Armed Forces member on active duty and whose income has been significantly reduced due to deployment, death or disability of the member, and
- unemployed or underemployed.
4. You owned a principal residence that is not permanently attached to a foundation such as mobile homes pursuant to applicable regulations.
5. You owned a property that did not comply with the applicable building code and if you were to bring this property to compliance it will cost you more than to construct a new home.
FHA and the First-Time Homebuyer
The Federal Housing Administration has been insuring home loans since 1934. What makes them appealing to first-time homebuyers?
- Low credit scores. The FHA is welcoming to borrowers with low credit scores or not-so-stellar credit. Borrowers with scores of 580 and below can apply for an FHA loan.
- Low down payments. For as low as 3.5%, which can come from gifts and down payment assistance programs, one can buy a home. Those with credit scores of 580 can qualify for the 3.5% down payment while those with credit scores between 500 and 579 will have to put a down payment of 10%.
- Low rates. Interest rates on FHA loans are relatively lower than on other loan programs. Between an FHA and a conventional loan, an FHA loan is priced lower. You can further lower your rate with a streamline refinance. Always shop to get the best rate.