Getting a new home, whether you want to rent it out or live in it, is a crucial decision. And if you’re looking to buy your first home, you probably ran through several scenarios in your head. The real estate market is large and complex, and if you’re new to it, it can seem difficult to get a grasp on how to qualify as a first-time homebuyer.
It’s not all worrying news, though. There are several advantages to being a first-time homebuyer, including eligibility for many programs to help you get affordable housing. The best thing is that even if you owned a home before, you may still be eligible for some of these benefits. In this article, explore what it means to be a first-time homebuyer and how you can qualify as a first-time homebuyer.
Who Qualifies as a First-Time Homebuyer?
Despite its name, the official federal definition of a first-time homebuyer covers several different kinds of homebuyers. However, a common quality of these groups is that none of them must own a home at the time of purchasing a new home.
If you’ve never owned a home, you automatically qualify as a first-time homebuyer. However, according to the US Department of Housing and Urban Development (HUD), you also qualify as a first-time homebuyer if you meet any of these conditions:
- You’ve not owned a home for the past three years. This means that if you’ve once owned a home, but you’ve not owned one for three years, you may qualify as a first-time homebuyer.
- You are a single parent or displaced homemaker who has only previously owned a home with a spouse. In other words, if your only home in the past was with a husband or wife, you may qualify as a first-time homebuyer.
- You have only ever owned a home that was not compliant with state or local building codes.
If you meet any of the above criteria, you may be qualified to be regarded as a first-time homebuyer for your new home. To be sure, confirm your eligibility with local representatives of the US Department of Housing and Development (HUD). If you’re qualified, you may proceed as a first-time homebuyer.
What Are the Mortgage Requirements to Qualify for First-Time Homebuyers?
Qualifying as a first-time homebuyer doesn’t exempt you from the same obligations as other homebuyers. You’d still need to convince mortgage lenders that you’re capable of repaying your home loan. As a potential homeowner, some of the requirements necessary to fulfill are:
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A good credit score
A credit score is a number that shows potential mortgage lenders that you’ve been a good manager of your cash inflows, whether you’re an employee or a businessperson. No mortgage lender wants to risk giving a loan to a reckless person, making this a crucial aspect of getting a mortgage. The higher your credit score, the more likely you will get a mortgage.
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Favorable debt-to-income ratio
Your debt-to-income ratio shows how much your income is used for purchases and other commitments. The debt component includes credit and debit card payments, housing costs, etc. The income component refers to how much income you receive from your business or job. A low debt-to-income ratio shows a mortgage lender that you’re in a great place to service your home loan regularly.
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Suitable down payment
A down payment is a lump sum that you pay on a new home before you can use it. Usually, a down payment is a significant percentage of the total cost of the house. It allows the previous owner to recoup part of their investment instantly. The bigger your down payment, the better the mortgage offer you’ll get. Many loans come with small down payments, though, so don’t be worried if you don’t have a house of cash at hand.
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Stable income source
Whether you hold a job or run a business, your mortgage lender must be convinced that you have a stable income source. This income source should be enough to allow you to repay your loan while meeting your existing debts and commitments.
What Should You Do to Qualify as a First-Time Homebuyer?
Here are a few things you need to improve your chances of qualifying as a first-time homebuyer:
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Check your credit score
As a first-time homebuyer, checking your credit score may seem scary, but it is crucial. Mortgage lenders must understand that you’re an excellent manager before giving a loan. Your credit score also helps you see how well you’re doing.
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Learn about your debt-to-income ratio
Your debt-to-income ratio is the ratio of your monthly financial obligations to the amount of income you receive monthly. It’s a great way to see if you can take on the added responsibility of owning a home.
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Understand how much down payment you can afford
A down payment can be quite a large amount, depending on the kind of home that you want to get. It is critical to understand how much you can commit to down payment to pick an option that suits your pocket.
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Get a loan pre-approval
Getting pre-approval for a loan is a great way to see what kind of loans you qualify for. This helps you to understand what kinds of homes you can look out for on the market.
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Shop for a suitable first-time buyer program
Buying a home and to qualify as a first-time homebuyer can seem challenging. But there are several programs to help you purchase your new home. Federal, state, and private institutions offer programs to help you purchase your home as a first-time homebuyer, including down payment assistance (DPA) and FHA loans. There are special programs for specific professions like teachers, firefighters, and first responders.
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Get an experienced real estate agent
When you’ve determined how much you’d like to spend and what program is best for you, getting a real estate agent to help you through the final phases of your homebuying journey is important. A great agent will help you find the best deal for your money and qualifications.
Be the Next First-Time Homebuyer
Getting a new home can be challenging, especially for first-time homebuyers. But there are plenty of advantages available to you that aren’t available to repeat homebuyers. It’s critical to understand your financial position as a homebuyer and to consider your options carefully. This will help you to get the best deal for your new home. A Denver mortgage lender is there to help you throughout the process.
