Can I buy a rental property first and then still get a first time home buyer loan

Question

Hi, I live in the Bay area and it's very difficult to buy a home here due to the high prices. I currently have a work trade arrangement for my rent and I have never had a home loan in my name. I am in the middle of a divorce and while I will receive money from the settlement it will not go as far as if I were to buy a rental property out of state. So here's the question, if I buy a rental property out of state that has never live in, and I still able to qualify as a first time home owner when I decided to buy a primary residence for myself in the bay area?

Arman Ahmed · Answer

@Michael Del Vecchio

Hi Michael, buying out of state can be a smart move, especially if you focus on markets with strong cash flow and under-valued properties. In the Midwest, you can find deals that make sense financially while still keeping your options open for a future Bay Area primary home purchase. It’s all about running the numbers and having a reliable local team in place.

Remington Lyman · Answer

Different banks have different first time home buyer programs, so I would call around and ask lenders this question. Also note that DSCR loans might be different than conventional rental loans.

Spencer Terrien · Answer

Hi Michael- this is a great question. William and Min had great responses as well.  It really determines what your strategy will be.  If you obtain a private hard money loan for an investment property out of state, you will not be disqualified from the first time home buyer programs when you're ready to purchase in the bay area.

Something to consider is a FHA loan for a first time home buyer but will come down to your strategy. Right now, FHA interest rates are between 5-6% compared to private money loans at 11-12%. My recommendation is pursuing a FHA loan and purchase a multi-unit property (duplex, triplex, fourplex), live in one unit for a year and then rent out the remainder of the units to cover your mortgage payments. You must live in the unit as your primary residence for one year then are able to move and rent it out.

If you would like to discuss further in detail, please let me know.

Jimmy Lieu · Answer

Hey Michael, welcome to BP and good question—it comes up a lot. The short answer is yes, you can still qualify as a first-time homebuyer later even if you buy an out-of-state rental first, as long as you’ve never owned and lived in a primary residence in your name. The IRS definition of a first-time homebuyer is someone who hasn’t owned a principal residence in the last 3 years. Since an out-of-state rental is considered an investment property and not your primary, it doesn’t disqualify you from first-time programs when you go to buy your Bay Area home down the road. Lenders and programs may have slightly different requirements, so it’s always smart to check the fine print with your lender or mortgage broker before pulling the trigger. But plenty of people go this route—pick up rentals first to start building wealth and then still use first-time homebuyer perks when they’re ready to purchase their own place. On the rental side, if you’re considering out-of-state, Columbus, Ohio is one market I’d recommend taking a look at. It’s one of the few metros where you can still find properties in the $120K–180K range that hit the 1% rule, cash flow from day one, and have great long-term upside with big employers like Intel, Amazon, Google, Honda, Microsoft, and Facebook expanding here. The fundamentals are strong with population growth, job growth, and appreciation potential, and it’s landlord-friendly compared to California. Happy to connect and answer any questions you have!

Min Zhang · Answer

That’s a really good question, Michael. From what I’ve seen, buying an out-of-state rental that you never occupy doesn’t usually disqualify you from being considered a first-time homebuyer later on. Most programs define a first-time buyer as someone who hasn’t owned and lived in a primary residence in the last three years. An investment property doesn’t fall into that category since you wouldn’t be living there.

It could be worth double checking with a lender though, since every program has its own quirks. Do you already have a timeline in mind for when you’d want to purchase your own place after the settlement?

William Thompson · Answer

Great question—buying a rental out of state won’t disqualify you from first-time homebuyer programs later, since those typically apply to your primary residence. The bigger thing I’d watch is how your financing and tax strategy line up, especially with settlement funds involved—you want to stretch those dollars as far as possible. If you’d like, I’m happy to walk you through how I’ve seen clients structure this so they keep their flexibility when it’s time to buy in the Bay Area.