FHA home loans are perfect for many first time home buyers who are looking for low down payment requirements, forgiving credit score guidelines, and a home that features refinance options later down the line for cash-out, rehab and repair, etc.
But does a house hunter have to be a first-time home buyer to qualify for an FHA mortgage? The short answer is no. FHA mortgage loans are for any financially qualified borrower, first time buyer or not.
That said, first-time home buyers may find an advantage when it comes to local or state down payment assistance programs.
FHA mortgages require the down payment to come from approved sources; those sources may include down payment assistance from agencies that provide such funds in accordance with FHA requirements.
Down payment assistance must meet the following FHA criteria as defined in HUD 4000.1 to include the use of funds from the program to the borrower.
FHA does not permit down payment assistance programs to pay off debts incurred by the borrower, outstanding liens, or other debts such as collections or judgments.
The money provided must be in the form of a bona fide gift and there should be no expectation of repayment for money earmarked as a gift and not a loan.
HUD 4000.1 requires the lender to “ensure that a gift provided by a charitable organization meets the appropriate FHA requirements, and that the transfer of funds is properly documented”.
Some of these down payment assistance programs may require the applicant to be a first-time home buyer. However, the definition of “first time home buyer” may be more flexible than some borrowers realize. You may qualify as a first time buyer if you have not purchased a home within the last three years, for example.
Some down payment assistance programs may require a certain FICO score range, while others may be need or income based. The programs are not standardized so you will need to check with the individual program guidelines to see what is possible.
Other programs may be more strict in their requirements depending on circumstances. But the bottom line is, while the FHA loan program itself, as defined in HUD 4000.1, does not favor or penalize a borrower based on their status as a first time buyer or not, certain programs available outside the FHA might.
Your participating FHA lender may also have certain incentives only for first time buyers, but it’s best to check with the lender to see how that financial institution defines a first-time home buyer or FHA loan borrower.
It’s never safe to assume you are unable to be considered as a first time buyer until you’ve asked the question of the lender or down payment assistance program representative. You may be surprised at the options open to you.