What is the definition of a first-time home buyer?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

This may seem like a simple question -- a first-time home buyer is anyone who has not purchased a home before. As we explain below, however, the definition of a first-time home buyer is relatively broad.

For most mortgage programs, you qualify as a first-time home buyer if you have not owned your primary residence within the past three years. So if you previously bought a home but sold it more than three years ago, you meet the eligibility criteria.

This also means that if you currently own a property that you have not lived in for three years -- for example if you rent your primary residence -- you may also qualify as a first-time buyer, although this is somewhat inconsistent with the spirit of definition.

According to the IRS, you qualify as a first-time home buyer if you did not own your principal residence within the past two years. This is important to keep in mind because you are allowed to withdraw $10,000 from your retirement account penalty-free to help you buy your first home.

For both IRS and mortgage guidelines, you are considered to own a home if your name appears on the property title that is recorded with your local government. If you live in a home with a spouse or partner but your name is not on the title, then you do not legally own the property.

Understanding this definition is important because certain mortgage and home buyer assistance programs are only available to first-time home buyers. Common examples of these programs include down payment assistance programs and closing cost grants. Some low down payment mortgage programs also apply this requirement.

Please note that if you are applying for a program with another person, in some cases only one applicant needs to be a first-time home buyer to be eligible. In other cases, both individuals need to satisfy the requirement to qualify.

Another important point to highlight is that many of the more popular no or low down payment programs do not have a first-time home buyer requirement. Examples of programs that allow repeat home buyers include the FHA, VA, USDA, HomeReady and Home Possible mortgage programs.

Review Best Low Down Payment Mortgage Programs

This is why we recommend that you understand program and lender eligibility guidelines before you apply. You may think you need to be a first-time home buyer to qualify for a program that is actually open to all applicants. On the other hand, you do not want to spend time or money applying to a program that has a requirement you cannot meet.

Most home buyer assistance programs and mortgage lenders outline their eligibility requirements on their website or program marketing materials but it never hurts to confirm these guidelines. It is always a good idea to contact the program administrator or lender directly so that you clearly understand the requirements and there are no surprises.

The table below shows mortgage rates and fees for leading lenders in your area. Whether you are a first-time home buyer or a repeat home owner, we recommend that you contact multiple lenders to determine their qualification guidelines and review loan terms. Comparing proposals from multiple lenders is also the best way to save money on your mortgage.

Sources

"Retirement Topics - Exceptions to Tax on Early Distributions."  IRS.  Internal Revenue Service, October 29 2019.  Web.