Do you qualify for homebuyer assistance? You might — even if you've already owned a home

Are you looking to buy your first, second or even third home? Financial assistance could be available to you.

Whether or not you've purchased a home before, there are thousands of homebuyer assistance programs across that U.S. that can potentially help make your next purchase affordable. Depending on certain details — such as your location and income — you might qualify for anything from a down payment grant to an ultra-low interest rate. Here's what you need to know before you apply. 

Can I get assistance if I've already owned a home?

Just because you've already owned a home doesn't mean you'll be denied assistance. Yes, many homebuyer assistance programs are for first-time buyers, but they tend to use a liberal definition of "first time."

Both the IRS and the Department of Housing and Urban Development (HUD) consider you a first-time homebuyer if neither you nor your spouse has owned a principal residence within the past three years. 

According to HUD, you can potentially be considered a first-time buyer even sooner than three years if you previously owned a home with a spouse but you're no longer married.

Each homebuyer assistance program has variations on the definition of "first time" buyer, but they generally follow HUD's guidelines. In other words, it's always worth taking a close look at the requirements to see if you're eligible.

How to qualify for homebuyer assistance

Homebuyer assistance programs come in many shapes and sizes. It's natural to assume they're only available for first-time buyers, young families or just about any group you're not a part of.

On the contrary, there are a surprising number of options for senior buyers and retirees, for people who've purchased a home before or even people who need help paying off their current home. 

Each homebuyer program has unique requirements, but here are some common threads:

What type of assistance is available for homebuyers?

Whether you want help covering your down payment or you need a loan for bad credit, there could be assistance that's right for you. Homebuyer assistance can take many forms that include:

• Lower upfront costs. Closing costs and down payment requirements may be reduced or waived. For example, you can get some Department of Agriculture (USDA) loans without a down payment, and Department of Veterans Affairs (VA) loans don't require a down payment or private mortgage insurance (PMI).

• Flexible eligibility. Some loan programs give you flexible qualification requirements. For example, USDA and Federal Housing Administration loans allow low credit scores.

Dig deeper: How a 1% drop in mortgage rates matters more than you think

Where to look for homebuyer assistance

The right homebuyer assistance for you could be a nationwide program or a nonprofit that's located in your neighborhood. 

Federally backed loans

The federal government has several loan programs you can apply for through approved mortgage lenders. Each mortgage lender has its own qualification requirements, but they're generally more flexible with government-backed loans. These mortgages are often more affordable than conventional loans too. 

State and local programs

Each state has its own programs to help buyers purchase homes, and your local government may offer support too. It's worth researching to see what's available at this level, since the majority of the more than 1,600 government down payment assistance programs in the U.S. are only available in specific states and limited locations. 

For example, 26 cities across California have Below Market Rate (BMR) housing programs approved by Freddie Mac. These programs help qualified buyers purchase homes priced at below-market rates, with down payments as low as 1%. Social Security and retirement income can be used to qualify.

Homebuying assistance resources

Learn more about programs and services designed to make it easier for you to buy a home:

FAQs: Homebuyer assistance, tax responsibilities and more

Still have questions about homebuyer assistance as you near or enter retirement? Learn more about what to expect before you apply.

Do I have to pay taxes on homebuyer assistance?

Down payment assistance programs generally aren’t included as part of your gross income reported on federal tax returns, according to the IRS, though exceptions come down to the type of program you use. State tax credits are likely to decrease your taxable income. Talk with a tax professional or trusted retirement advisor about the best way to navigate your tax liabilities and file your return.

Can I be approved for homebuyer assistance if I'm about to retire?

Yes, as long as you can meet the income and credit requirements for the assistance program or tax credit you’re interested in. Many programs allow you to include Social Security and other retirement income to qualify as long as you’re expected to receive it for the foreseeable future. Confirm the requirements of your program before you apply.

Can I get a loan if my only income is Social Security?

Yes, if you can meet other lender requirements. Some lenders may prefer to work with borrowers who are employed full time. However, they legally cannot discount income from pensions, retirement accounts, Social Security or other government benefits programs when considering your application, thanks to the Equal Credit Opportunity Act. Learn more about requirements before you apply in our guide to personal loans. 

I own a home. Can I use home equity to invest in a rental or investment property?

You can use a home equity loan to buy a rental or investment property, but that doesn’t mean you should. Among the two most popular ways to tap into your home’s equity are home equity loans and home equity lines of credits. Both types of loans are ways to borrow from the money you’ve already paid into your home, based on your home’s appraised value. And there are no restrictions as to how you can use the money you borrow with a home equity loan. Learn more about the benefits and risks of tapping your home equity for a second home or investment. 

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About the writer

Sarah Brady is a finance writer and educator who covers a wide range of topics, from personal and small business credit and loans to financial scams. Her expertise has been featured in Yahoo Finance, Forbes Advisor, CNN, Fortune, Investopedia and other top media brands. As an NFCC-certified credit counselor, Sarah taught workshops on money management and coached thousands of clients on how to improve their credit. She is also a former HUD-certified housing counselor and educator for the City of San Francisco's affordable homebuyer programs.

Article edited by Kelly Suzan Waggoner