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First-time home buyer in 2024: What you need to know

Updated 8 min read

It's a good time to be a first-time home buyer. No, really. For one thing, current market conditions are keeping possible repeat buyers on the sidelines. A Zillow report says current homeowners with low mortgage rates are waiting for loans to ease back down to the 4% or 5% range before making another move. Fewer buyers chasing available listings is a good thing.

But beyond that, first-time home buyers are entitled to exclusive benefits, including low down payments, credit-score flexibility, home buyer grants, and down payment assistance. Here's how to work the special perks to your advantage when getting your first mortgage.

Read more: Best home loans for first-time buyers

For most first-time home buyer benefits, borrowers purchasing a single-family home as a primary residence can qualify in one of three ways:

  1. You've never purchased a single-family home before.

  2. You haven't owned a home in the last three years, including sole or joint ownership.

  3. You're a displaced homemaker or single parent who has never owned a home, other than joint ownership with a spouse in the last three years.

In addition, eligibility requirements for a first-time home buyer loan will typically include a steady household income and a manageable debt load. More on that later.

Learn more: Should you rent or buy a home?

If you're looking to buy a house in 2024 or aiming for to get your first mortgage next year, a lower down payment and credit-score flexibility are two of the biggest breaks you get.

While 20% down has been the historical goal — because it eliminates private mortgage insurance, a fee to protect lenders from a default — first-time home buyers can make a minimum down payment of 3% of the purchase price (and some lenders drop that down to a 1% down payment).

If a low credit score is your financial hurdle, first-time home buyers can get an FHA loan with a FICO credit score as low as 500 with 10% down (or 580 with 3.5% down), or a conventional loan with a score as low as 620.

Home-buyer education courses are also available to first-timers and can help you discover and understand the process for buying a new home.

Read more: How to get a 3% down mortgage in 2024

Another big benefit of being a first-timer: government and nonprofit first-time home buyer programs that provide closing cost and down payment assistance. These loan programs empower potential homeowners from all walks of life: teachers, first responders, Native Americans, public housing residents, and low- and middle-income households.

While many programs involve loans or tax credits, you might also qualify for a first-time home buyer grant that you don't have to pay back.

The U.S. Department of Housing and Urban Development (HUD) offers resources for first-time home buyers to find assistance programs they may be eligible for. State housing finance agencies can also provide additional information on homeownership programs.

Some employers offer home-buying assistance programs for employees trying to buy their first home, too. Ask your human resources rep if your company offers any such programs.

Learn more: First-time home buyer programs in California

A little math can answer this question.

  • First, determine your gross pay. That's how much you make each month before taxes, insurance, and other payroll deductions.

  • Now, multiply that amount by 28%. The result is generally the amount lenders are looking for when considering all of your housing expenses: your monthly mortgage payment, homeowners insurance, and taxes.

  • Just to be sure you're in the home-buying pocket, multiply your monthly gross pay by 36%. That's the preferred amount of all of your monthly debt — housing, plus things like vehicle and student loans and your monthly minimum payments on credit cards.

There is some leeway here. If you have a higher credit score, a decent income, and a solid credit history, a lender may work a little outside the margins of these debt-to-income ratios.

Dig deeper: How much house can I afford? Use Yahoo Finance's free home affordability calculator.

Depending on your creditworthiness, you might actually be able to borrow more than you can afford. You read that right.

Lenders may approve you for more than you budgeted for. While they take a lot of financial factors into account when considering a loan, only you know what you can comfortably spend each month so you don't fall into a "house-poor" scenario. That's when you spend so much on your home that there's little money left over for anything else.

On the other hand, you may qualify for less than you expected. That can lead to disappointment and frustration.

Tip: To avoid either surprise, use mortgage calculator to help determine what you can afford. It will consider your current debt, as well as your expected mortgage payment, including an estimate of insurance and taxes. It will be a ballpark figure, for sure. Round up the result to give yourself a good margin for error.

Read more: Best time of year to buy a house

In the home-buying process, this will be your second-biggest decision, other than deciding which home to buy. Finding the best mortgage lender for a first-time buyer can take some time and effort. You want the best combination of interest rate, low fees, and excellent service. Here are some tips:

  • Ask family and friends about the lender they used. Was it a good experience? Do they recommend them?

  • Ask your current bank or everyday financial provider to make a pitch for your business.

  • Throw a credit union or local savings bank into the mix.

  • Definitely check out a couple of online-only lenders.

  • Ask your Realtor for a lending lead.

Tip: Don't rely on just one lender; let the competition for your business work in your favor. When you find two or three lenders you really like, ask to get preapproved. Have each lender quote an expected interest rate with zero discount points and the lowest fees they can allow.

Keep those mortgage preapprovals in your back pocket while you shop for a home.

Knowing your credit score gives you a better idea of what kind of interest rate lenders will offer.

The minimum FICO score you'll need ranges from 500, to qualify for an FHA-backed loan, to 700, the minimum score needed to qualify you for a more expensive home loan, called a jumbo mortgage.

In order to get the most favorable interest rate on any product, you’ll need a minimum credit score above 760.

A good lender will walk you through all the types of mortgage loan programs you qualify for.

Learn more: Buying a house with good (but not great) credit

While a renewal of the first-time home buyer tax credit has been bouncing around the halls of Congress for some time now, the original income tax break ended in 2010. President Joe Biden has floated the idea a couple of times, but so far, there is no tax credit for first-time home buyers.

Once you've had some initial conversations with lenders, you'll know your down payment requirement and the expected terms of your loan. You'll even have a good idea of how much your monthly payments will be.

Assuming you've got the down payment ready to go, it's time to shop for a house. With a good buyer's Realtor on your side, you'll find that home, make an offer for a fair purchase price and then the loan process begins:

  1. Go back to your three lender finalists and ask for a loan proposal with a competitive interest rate.

  2. Compare the loan estimate forms you’ve received and select the lender with the best combination of a low interest rate and the fewest upfront fees.

  3. The chosen lender will begin the underwriting process while the home is inspected, a home appraisal is completed and the loan goes through final approval.

  4. Three days before closing, you'll receive an official Closing Disclosure form detailing the mortgage interest and upfront fees you'll pay.

  5. Then, signing day arrives and you close on the house.

Many mortgage lenders allow first-time home buyers to put down as little as 3% on conventional loans, but you have other loan options for low down payments. If you get an FHA loan — an option that appeals to many first-time buyers due to its flexible minimum credit score and debt-to-income requirements — you'll need to put 3.5% down.

There are three ways to qualify as a first-time home buyer: You have never bought a single-family home before, you haven't owned a home in the last three years, or you're a displaced homemaker/single parent who hasn't owned a home in the last three years (unless it was joint ownership with a spouse).

In his March State of the Union speech, Biden said he wanted to give first-time home buyers a tax credit of almost $10,000. This initiative has not yet been passed by Congress, though.