Are 3% down mortgage programs for first-time homebuyers only?

Peter Miller
The Mortgage Reports contributor

Are all the good mortgage programs for first-time homebuyers only?

Some great mortgage programs are available only to first-time homebuyers. But that’s not the whole story. Find out here how you too can get access to some of the best home loans.

Verify your low down payment loan eligibility (May 31st, 2020)

Repeat buyers can be (technically) “first-time homebuyers”

It may seem odd that repeat buyers can use a first-time homebuyer program to get mortgage financing. But it’s often true.

How to buy a house with no money down in 2017

If you think about language, you understand that words often have multiple meanings. That is certainly the case with the term “first-time home buyer.”

Definition (normal) of “first-time homebuyer”

Let’s start with the apparently plain meaning of the expression “first-time home buyer.” Smith has never been on a real estate title, never had an equity interest in property, and wants to buy a house. Smith is a first-time buyer.

First-time homebuyers put an average of 6% down, says study

This, however, is not the definition used by most mortgage programs to identify first-time buyers.

Definition (government) of “first-time homebuyer”

The US Department of Housing and Urban Development (HUD) defines a first-time home buyer (FTHB):

  • anyone who has had no ownership in a primary residence for three years prior to the closing date of the new purchase
  • An FTHB includes any individual that has only owned with a former spouse while married

Conventional or FHA? What’s better for you?

  • You can also be an FTHB if your principal residence was a mobile home, not permanently affixed to a permanent foundation
  • You can be an FTHB if your owned property is not in compliance with building codes, and it would cost more to fix problems than it would to build a new structure

Many who don’t believe they are eligible for first-timer programs are wrong.

The VA and eligibility

With the VA, the question is not whether you are a first-time buyer, but rather if you are a first-time VA borrower.

The VA says that veterans must pay a funding fee to use the program. The funding fee depends, in part, on whether you are a first-time or subsequent loan user.

Type of Military Service Down Payment Fee for First-Time Use Fee for Subsequent Use
Active Duty, Reserves, and National Guard None 2.3% 3.6%
5% or more 1.65% 1.65%
10% or more 1.4% 1.4%

The chart above illustrates how the size of your down payment, and your status as a borrower make a big difference in what you pay.

USDA and first-timers

With USDA rural development mortgages, the approach is similar to the FHA.

According to the Agriculture Department, a first-time home buyer is anyone who hasn’t owned a home in 3 years.

First-time homebuyers guide: What is a USDA mortgage?

In addition, according to USDA, “A first-time home buyer includes displaced homemakers and single parents even though they might have owned, or resided in a dwelling with a spouse.”

So, again, you actually can be a “first-time” home buyer and yet have owned a property in the past under the USDA definition.

Verify your low down payment loan eligibility (May 31st, 2020)

Conventional (non-government) mortgages and first-time homebuyers

Fannie Mae and Freddie Mac buy huge numbers of mortgages from lenders nationwide. The government-sponsored enterprises buy only loans that meet certain standards. These home loans are therefore known as “conforming” mortgages.

Both Fannie and Freddie offer special low-down-payment programs for first-timers. But Fannie Mae also offers a 97 percent loan for repeat buyers. And Freddie Mac has one requiring just 5 percent down.

Freddie Mac’s Home Possible versus Fannie Mae’s HomeReady: Which is better?

Fannie Mae says first-time buyers:

  • will use the property as their primary residence
  • have had no ownership interest (sole or joint) in a residential property during the three-year period prior to the purchase
  • “displaced homemakers” can also be first-time homebuyers if their only property ownership in the last three years was jointly with a former spouse.
  • In some cases with first-timer buyer programs, at least one borrower on a loan must complete a homeownership education program prior to loan closing.

With Freddie Mac, the description of a first-time buyer is much the same.

Local programs and down payment assistance

Finally, there are special programs sponsored by local governments offering assistance with down payments and closing costs. They are usually available only to first-timers, with one exception: if you buy in a “redevelopment area,” you can often get this help if you’re a repeat buyer or even buying investment property.

Why the different definitions?

The question that comes up is why do mortgage programs often have a three-year standard for determining who is a “first-time” buyer.

The answer is that some degree of flexibility is built into the system as a way to balance the incentives for first-time home buyers and the realities of modern life. If someone is married, buys a home with a spouse, and later gets divorced, we want to help them both re-start their lives.

The three-year non-ownership period is a way to say that help is available when things don’t quite turn out as planned.

What are today’s mortgage rates?

Today’s mortgage rates have changed very little from those earlier in the week. To get the best available rate, it’s important to compare several quotes from competing mortgage lenders.

Verify your low down payment loan eligibility (May 31st, 2020)