DEFINITION of 'First-Time Home Buyer'

An individual who is purchasing a principal residence for the first time. First-time home buyers are more commonly recognized according to several criteria with regards to an individual retirement account (IRA). If these criteria are met the owner can be granted special privileges, such as exemption from the early-distribution penalty.

BREAKING DOWN 'First-Time Home Buyer'

The purchase does not need to be a traditional home in order for the individual to qualify as a first-time homebuyer, but it must be the principal residence. For example, it could be a houseboat that will be lived in. The maximum amount that may be distributed from the IRA on a penalty-free basis for this purpose is $10,000. This is a lifetime limit. For married couples, the limit applies separately to each spouse. This means that the combined limit for a married couple is $20,000.

The penalty applies to IRA distributions that occur before the IRA owner reaches a specific age, such as 59.5 years old.

RELATED TERMS
  1. First-Time Homebuyer Tax Credit

    A refundable tax credit made available to Americans purchasing ...
  2. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  3. Form 5405: First-Time Homebuyer ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
  6. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
Related Articles
  1. Retirement

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  2. Retirement

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  3. Investing

    Credits For First-Time Homebuyers

    Tax credits, grants, and other options can help first-time homebuyers afford their purchase. They just need to know where to look.
  4. Investing

    Special Benefits for First-Time Homebuyers

    To encourage Americans to buy their first homes, the government offers credits and tax breaks. Here's the lowdown on who can qualify for each benefit.
  5. Taxes

    The Truth About The First-Time Homebuyer Tax Credit

    The $8,000 tax credit might be the push you need to buy your first house, but there are some things you need to know first.
  6. Retirement

    Tax Treatment Of Roth IRA Distributions

    Learn the requirements for withdrawing funds tax and penalty free.
  7. Retirement

    11 Things You May Not Know About Your IRA

    These little-known features will help you get the most out of your retirement savings.
  8. Retirement

    When Can You Use Your IRA to Buy a House?

    If you're a first-time homebuyer (a term that's defined more flexibly than you think), you can tap your IRA to help with the costs of your purchase.
  9. Retirement

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
RELATED FAQS
  1. Can my spouse and I use our IRAs to purchase our first home?

    IRA owners can make penalty-free distributions to buy a first home for themselves, their spouses, children, grandchildren ... Read Answer >>
  2. My Traditional IRA has been converted to a Roth IRA. Can I still make a qualified ...

    If you converted the funds less than five-years ago, you will not be able to meet the qualified distribution requirements. ... Read Answer >>
  3. My wife and I both converted our Traditional IRAs to Roth IRAs in Dec 1998 and have ...

    You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction ... Read Answer >>
  4. Can I, without tax penalties, use the IRA I inherited from my father to buy a home ...

    If you inherited an IRA from someone who was not your spouse at the time he/she died, the amounts that you receive as a distribution ... Read Answer >>
  5. How can I use my Roth IRA savings to buy my first home?

    Use your Roth IRA to help fund the purchase of your first home, and find out about ways to access these funds even if you ... Read Answer >>
  6. Can an IRA be used as security for a loan?

    The IRS prohibits the use of an IRA as security for a loan. If an individual borrows money against his or her IRA, the IRA ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center