This series of articles was originally posted on a travel/real estate website as an article for their Washington, DC. branch.
So, you’re moving to Washington, D.C. and you’re looking to buy a home. From researching the best neighborhoods to home affordability, there are assistance programs that you could qualify for, too. We’ve compiled a list of mortgage options that support buyers in their quest for homeowner status in the District.
Down payments, assistance programs, loan rates- Oh My! If buying a home wasn’t complicated enough, becoming a homeowner in a brand new city comes with it’s own special set of unique challenges and things to research. Despite that, homeownership rates in D.C. are climbing– November of 2016 saw the highest amount of homes sold since 2005. And while people seem to be flocking to live here, Brian Martucci, a mortgage lender at 1st Mariner Mortgage, says that buyers need to be aware.
“People relocating to Washington DC need to be prepared for sticker shock as far as real estate prices, depending on where they are coming from. Those relocating from LA or New York to Washington DC won’t be phased. But, if you’re coming from a market that isn’t a major urban metro, be prepared for expensive real estate prices. One would also need to be prepared for a market that still has limited inventory and more demand than supply.”
He also goes on to mention that while the qualifications between D.C. and its surrounding metro areas don’t vary much across jurisdiction borders, D.C. does have some great assistance programs for its residents. We’ve compiled a list of the mortgage options you’ll find most common with home buyers in the area, as well as the assistance programs that make purchasing a home here unique.
In 2015, the District saw a surge in mortgage applicants using FHA loans to buy their homes over other options. The money is regulated by the Federal Housing Association and tend to have less rigorous lending standards and low down payment costs. The best part is, even borrowers with less than stellar credit can, and do, qualify.
Some things to consider when researching FHA options– Not all lenders treat FHA loans the same. Since the FHA is more of an insurer than a lender, finding a reputable FHA lender can mean the difference between costs and interest rates. And, for whatever reason, if you are faced with a legitimate financial hardship, there are options and resources for you to get some financial relief.
One of the unique features of an FHA Loan is that they’re sometimes used to spruce up houses in neighborhoods that have fallen into a bit of disrepair. If you’ve fallen in love with a home that needs some TLC, you can pair an FHA loan with a 203(k) loan where the borrower can finance up to $35,000 for non-structural repairs like painting or refurbishing cabinets and fixtures to get the home looking its best.
What makes these loans so attractive, especially to first-time homebuyers, is the amount of money needed for a down payment. 3.5 percent is the industry standard but can range to 10 percent for borrowers with poor credit. The better credit you have, the more likely you will get approved for an FHA loan, but it’s not uncommon for people with scores of 520-580 to get approved, too. That’s where the insurer vs. lender comes into play. Buyers are required to pay mortgage insurance to protect the FHA from possible defaults.
According to Bankrate.com, “The upfront premium is 1.75% of the loan amount about $1,750 for a $100,000 loan. This upfront premium is paid when the borrower gets the loan and it can be financed as part of the loan amount.”
Getting approved for a conventional loan has its perks. Fewer closing hoops to jump through, cheaper mortgage insurance, more flexibility, and you can build up your equity faster, too.
Conventional loans allow you more room to shop around and do comparison pricing. Lenders want your business, and if you meet the requirements, many will jump through hoops to get you to go with them- including lowering rates and costs associated with your closing. Buyers who qualify for conventional loans don’t need to invest in the mortgage insurance that FHA loans require, either.
Conventional loans are not backed or insured by government agencies like the FHA, which means that the requirements to get one will be much more stringent. However, the options for lending are endless, and, as they say, the world is your oyster! Banks, brokers, credit unions– if you meet the right requirements, you’ll be able to shop for the best options that fit your needs.
Not all lenders require a 20% down payment for conventional loans, but many do, and it’s the most ideal situation when you’re looking to buy a home with a conventional loan. A 720 or higher credit score will earn you the best rates, but some conventional loans will allow as low as 620 when they’re making a decision. It’s not uncommon for people with a low credit score and without a 20% down payment to be denied. They’ll look at your employment history (2 consecutive years or more is ideal), your debt to income ratio, and other assets, so having those in top shape will help your application.
The Home Purchase Assistance Program (HPAP)
The Department of Housing and Community Development offers a program for first-time homebuyers with low to moderate income looking to buy a home in the city. For eligible applicants, it offers up to $50,000 in gap financing help and an extra $4,000 in closing costs assistance. There’s no limit on the type of home you can buy, either– single family homes, co-ops and condominiums are eligible with HPAP, and the loans are interest-free.
A great search engine for those looking for homes that meet eligibility requirements is the DC Housing Search, which has resources and a list of homes available to buy.
It’s an excellent program for potential home buyers who have already relocated to Washington but have been renting. The program gives priority to established DC residents or applicants who have been employed in the city for a year or more.
There are some eligibility factors to take into consideration for the HPAP program. For instance: Your potential home must be inside the city limits of D.C., and must act as the borrower’s primary residence. The buyer must be in good standing on their credit and recipients contribute $500 or 50% of liquid assets greater than $3,000, whichever is greater.
According to HPAP’s website, “The 0% interest loan is deferred for the first five-years, and amortized over 40 years. The entire amount of the loan is immediately due and payable if the borrower transfers the property, the property is refinanced (unless the refinance meets certain conditions), or the property ceases to be the borrower’s principal place of residence.”
If this is something you think you qualify for, you can contact any of these organizations, and they can get you on the right track! Housing Counseling Services CBOs
DC Open Doors
A fantastic home buying program created by the DC Financing Agency (DCHFA) about 2 years ago has been enormously successful in helping first time and repeat home buyers find affordable housing within D.C.’s city limits. They offer down payment assistance as well as financing options so that those working in downtown D.C. can live there, too.
According to their website, “DCHFA’s DC Open Doors program is built around a Down Payment Assistance Loan (DPAL) that does not have to be paid back. This is essentially “free money” – the Down Payment Loan’s balance due reduces by 20% each year for a term of 5 years, ending in a zero balance due.”
This is great news for those with good income and good credit struggling to save money for a home. In the two years since its conception, the program has funded over 100 million dollars worth of loans!
The first rule for this program is that your household income can’t exceed $131,040. Borrowers must be able to qualify for a conventional or FHA loan through their guidelines, and a 45% debt to income ratio. The maximum loan amount is $417,000 or less and minimum credit scores range from 660 to 680. Depending on the loan you’re approved for, interest rates range from 3-5 percent, just like an FHA loan.
For some of their products, a homebuyer education course is required, so contacting a HUD-approved housing counseling agency for more information is a great idea.
The VA Loan Program
One thing that’s special about the D.C. Area, is our proximity to military history. Monuments, museums, the Pentagon, Arlington National Cemetery, and, just a short drive to Annapolis, tourists can visit the Naval Academy, too. You’ll find veterans and active military just about anywhere you turn, here. For veterans, finding a home in proximity to their jobs is important, and the VA Loan program makes it a little bit easier.
According to Veterans United Home Loans, “In 1944, the U.S. government created a military loan guaranty program to help returning service members purchase homes. The result, the VA Loan, is a mortgage loan issued by approved lenders such as Veterans United Home Loans and guaranteed by the federal government.”
VA Loans have 0% down options, No PMI or monthly mortgage insurance, competitive interest rates and it’s easier to qualify for than an FHA or a Conventional Loan. Veterans can qualify for this type of mortgage option if they served 90 consecutive days of active service during wartime, served 181 days of active service during peacetime, have more than 6 years of service in the National Guard or Reserves, or are are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
For more information on how you can qualify for a VA Loan, visit: VA Home Loan
Moving to DC doesn’t come without it’s challenges, but finding a mortgage option that works for you shouldn’t be one of them.