First-Time Home Buyer

A first-time home buyer is an individual who is purchasing a principal residence for the first time.

First-time home buyers are more commonly recognized according to several criteria with regard to an individual retirement account (IRA). If the potential home buyer meets these criteria, they can be granted special privileges, such as exemption from the early-distribution penalty.

The purchase does not need to be a traditional home in order for the individual to qualify as a first-time homebuyer, but it must be the principal residence. For example, it could be a houseboat that will be lived in. The maximum amount that may be distributed from the IRA on a penalty-free basis for this purpose is $10,000. This is a lifetime limit. For married couples, the limit applies separately to each spouse. This means that the combined limit for a married couple is $20,000.

The penalty applies to IRA distributions that occur before the IRA owner reaches a specific age, such as 59.5 years old.

Many first-time home buyers don’t realize there are several programs available to them that can offer financial help.

One such program is a loan through the Federal Housing Administration (FHA) that insures the mortgage. The FHA’s backing offers lenders a layer of protection, meaning that the lender won’t experience a loss if the borrower defaults on the mortgage. FHA loans also typically come with competitive interest rates, smaller down payments and lower closing costs than conventional loans.

The U.S. Department of Agriculture (USDA) also has a homebuyer assistance program. While the program focuses on homes in certain rural areas, first-time home buyers don’t need to buy or run a farm to be eligible. With this program, the USDA guarantees the home loan, there may be no down payment required, and the loan payments are fixed. This program does include income limitations, which can vary by region.

The U.S. Department of Veterans Affairs (VA) helps first-time home buyers who are active-duty military members, veterans and surviving spouses. VA loans come with competitive interest rates, require no down payment, and the VA guarantees part of the loan. With a VA loan, first-time home buyers aren’t required to pay for private mortgage interest (PMI), and they do not need to maintain a minimum credit score for eligibility. Additionally, if the borrower ever struggles to make payments on the mortgage, the VA can negotiate with the lender on their behalf.