Top hurdles to qualifying as a first-time homebuyer

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Q: I would like to move to California and buy a house there, which I would live in as my full-time residence. I have two homes outside California, which I own in my name, but I live in them only when they are vacant. Is it possible for me to be considered a first-time homebuyer in California?

A: Many buyers will benefit from the top-level takeaway from your question and my answer, which is that the term "first-time homebuyer" is not a literal one, in the real estate and mortgage industry. In fact, based on the scenario you present, many programs would consider you to fit the definition of a first-time buyer.

1. Know the basic definition of first-time buyer. Most local and state programs define a first-time homebuyer as a person who has not owned a home in the jurisdiction covered by the program within the past three years. That means if you owned a home years earlier in that place, but sold it or lost it to foreclosure at least three years ago, you become a virgin homebuyer all over again.

Similarly, many programs allow that if you currently own a home outside of the program’s jurisdiction, as you do, you still qualify as a first-time buyer.

Additionally, some programs even allow that if one spouse was never on title to a home currently owned by the other spouse, the nontitled spouse might still qualify as a first-time homebuyer.

2. Know your target program’s guideline for what comprises a first-timer. All that said, you really cannot know for 100 percent certain whether you meet a program’s guidelines for being a first-time homebuyer unless and until you scrutinize the particular definition provided in that program’s materials. These days, the most useful first-time homebuyer programs are administered at the city, county and state levels; to see if you meet the relevant definition, visit those local entities’ websites and find the program guidelines.

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3. Know the other hurdles that might be more difficult to leap. I don’t know whether your other properties are encumbered by mortgages or not, but I should caution you that it might be difficult to qualify for another mortgage if you need the bank to consider the rental income as an offset for mortgage debt on those income properties.

Generally, lenders consider only a fraction of the actual rent you can prove you’ve been receiving, like 75 percent, toward your income, because they are aware that vacancies and missed rent payments are a reality of income property ownership and they want to make sure you are not overextended on your new home.

This often results in a situation where a landlord’s debt-to-income ratio for purposes of qualifying for another home purchase is skewed, looking like she is much more burdened on a monthly basis than she actually is, after considering the actual rental income being received. This may make it difficult to qualify for another home mortgage in any event.

Further, most first-time-buyer down payment assistance programs also have income limitations or guidelines, to ensure that these funds are used to assist the moderate- and even low-income buyers who need them the most.

So, if you do have a high enough personal or rental income to meet the bank debt-to-income ratio levels required to obtain the mortgage on another home in California, it’s very possible that your income might be high enough to disqualify you from receiving benefits earmarked for first-time homebuyers.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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