Incentives Available for First-Time Buyers

Moshe Farber
28, Jan 2022

Buying a home is often a demanding and stressful experience, especially for first-time homebuyers. When you’re buying a home for the first time, it’s easy to be overwhelmed by all of the red tape, legal procedures, and expenses associated with a home purchase.

Those that have already navigated this process often have a better understanding of the programs and benefits to look into when buying a home. Luckily, there are a number of incentives and perks that are offered exclusively to first-time homebuyers to encourage homeownership and support the American dream.

Nonetheless, getting a grasp on all of these incentives can be a difficult task, so let’s explore some of the most exciting opportunities that first-time homebuyers can take advantage of. 

Who Qualifies as a First-Time Homebuyer?

First of all, it’s important to understand who qualifies as a first-time homebuyer in a legal sense, since that will determine your eligibility for some of these incentives. The US Department of Housing and Urban Development determines first-time homebuyers as homebuyers that meet at least one of the following criteria. 

An individual who has not owned a home for the past three years or longer is considered a first-time homebuyer. Any person who does not own a home after having previously owned one with a spouse and subsequently losing ownership after a separation or divorce is considered a first-time homebuyer. People who have never owned a home that is compliant with building standards are considered first-time homebuyers. Finally, people that have owned property that has not been permanently attached to a foundation are also considered first-time homebuyers. 

This might be good news for individuals who weren’t aware that they qualify as first-time homebuyers as a matter of law. Now that we’ve defined the term, let’s move on to some of the benefits available to first-time homebuyers and how to take advantage of them.

Good Programs for First-Time Homebuyers to Consider

Federal Housing Administration (FHA) loans are often a strong, popular option for first-time homebuyers to consider. They are particularly well-suited for borrowers who have subpar credit or debt-to-income ratios. That’s because FHA loans are insured by the federal government which often makes them more accessible to borrowers that might not have great approval odds for other loans. 

FHA loans also typically require lower down payments and offer lower interest rates to borrowers. That’s great news for first-time homebuyers. There are many different kinds of FHA loans that borrowers can look into, including Home Equity Conversion Mortgage, FHA Improvement Loan, FHA Energy Efficiency Mortgage, and the Section 245(a) Loan. Each different type of FHA loan has its own benefits. 

It’s important to note that you technically don’t need to be considered a first-time homebuyer to qualify for a FHA loan, but they are a particularly good option for many first-time homebuyers.

Other Federally-Backed Loans

Aside from FHA loans, there are a variety of other federally-backed loans that are insured by different governmental organizations that first-time homebuyers should look into. 

First-time homebuyers should consider Veterans Administration (VA) loans if they have connections to the military. They offer low-interest rates, low down payments, and favorable approval odds. 

Another possible option would be to consider US Department of Agriculture (USDA) loans for first-time homebuyers that are considering properties in rural areas. They provide similar benefits including lower interest rates and lower down payments. Another option worth exploring is the Good Neighbor Next Door loan program for borrowers that are EMTs, firefighters, or law enforcement officers. 

IRA Withdrawals 

If you are buying a home for the first time, or if it’s been three years or more since you’ve owned a home, you are eligible to withdraw up to $10,000 from your Roth IRA to finance a home purchase. 

Making a withdrawal for this purpose will allow you to avoid paying the 10% penalty for an early withdrawal from an IRA account. The $10,000 withdrawn from an IRA can be put towards a down payment or used to finance the purchase of a home. 

Housing and Urban Development

It’s often a good idea for first-time homebuyers to connect with the Department of Housing and Urban Development. 

The HUD can often connect borrowers to organizations that can provide grants to qualifying first-time homebuyers. The organization itself is focused on expanding homeownership. A local HUD representative might also be able to help you shop for a loan in an educated and efficient way in order to secure lower interest rates and down payments. 

HUD representatives will help to caution borrowers about the dangers of predatory lending, educate them about their rights, navigate local regulations, and find loan options that best suit their needs. 

State Programs for First-Time Borrowers

There are a wide array of tax deductions and tax credits available to first-time homebuyers, often offered on the state level. For example, borrowers should take advantage of home mortgage interest deductions during tax season. 

Environmental tax deductions are available to many borrowers, especially those that use renewable energy such as solar in their homes. You should also consider loan origination fee tax deductions, which relate to the costs paid to secure your home loan. State and local property tax deductions are also often available depending on where you’re buying property. 

Since many of these opportunities are offered at the state level, it’s crucial for borrowers to educate themselves about the programs in their area. In order to take advantage of these programs, you will have to secure a loan through an authorized and participating lender. 

Some of these state programs, particularly in high-cost areas such as Hawaii offer steep discounts on home prices or substantially lower interest rates, offered on a lottery system to first-time homebuyers. If you are a qualified resident of Hawaii or another participating state, it’s worth applying to these lottery programs. 

Many lottery programs are focused on providing opportunities to teachers, first-responders, firefighters, or other essential workers in the area. This is particularly true for areas such as San Francisco, where many essential workers such as teachers are being priced out of the district.

Being a first-time homebuyer is both an exciting and overwhelming experience, which is why it’s important to do your homework when it comes to the many benefits available. Many of these incentives exist to encourage homeownership in America and it would be negligent to ignore these opportunities. 
Looking to buy your first home? An Astar loan officer will hold your hand through the process and get you approved quickly and easily. Reach out to an Astar loan officer today! Email or call 888-ASTAR-11 (888-278-2711)

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