Making the move from renter to homeowner can seem like an obstacle course with multiple hurdles to jump.
In some cases, the costs of homeownership may not be as high as some buyers anticipate.
Several mortgage loans are available with down payment requirements as low as 3, 3.5 or 5 percent, and, for veterans and active duty military service members, zero down payment loans are an option.
Closing costs average 2 to 5 percent of the home value depending on the jurisdiction.
“Just as you should get prequalified for a home loan, you should also find out what programs you may qualify for,” Chrane says. “Ask your agent and lender about available down payment programs and mortgage credit certificates. Many resources can be combined for even greater impact.”
Home buyer assistance programs are available through state and local governments, nonprofit agencies and lenders. For example, Bank of America offers grants that don’t need to be repaid for qualified buyers for 3 percent of the purchase price (up to $10,000) for a down payment and a credit of up to $7,500 for some closing costs in the District; Frederick, Rockville and Silver Spring in Maryland; and Alexandria and Arlington in Virginia.
“Qualifying incomes and home prices are higher than you may think,” Chrane says. “They’re adjusted based on area median income, so in higher-cost markets you’ll see higher allowable limits.”
Common requirements for home buyer assistance include taking a homeownership education class, having a minimum credit score (often 640 or higher) and maximum income and meeting home price limits. Assistance is typically available on only a primary residence and not for investment properties or second homes.
Some programs are only open to first-time home buyers, defined as someone who has not owned a home within the past three years. Other programs are open to all buyers.
Here are some home buyer programs in the Washington area:
● Home Purchase Assistance Program: Administered by the D.C. Department of Housing and Community Development, this program provides financing assistance up to $80,000 and closing cost assistance of $4,000. Also, programs are available for city employees for an additional $5,000 to $20,000 in deferred loans or grants. Income limits range from 80 to 110 percent of area median income, currently $121,300 for a four-person household.
● DC Open Doors: The DC Open Doors program is open to all applicants as long as they don’t currently own a home, are buying a home in the District and have an individual borrower income of a maximum of $145,560. The D.C. Housing Finance Agency (DCHFA) program is based on an individual borrower’s income rather than household income. A credit score of 640 or higher is required, along with a maximum debt-to-income ratio of 45 to 50 percent — which means your monthly minimum debt payments can be no more than 45 to 50 percent of your monthly gross income. The maximum loan amount is $484,350.
Loan programs are available with or without a down payment assistance. Some borrowers may be eligible for 100 percent financing with the help of down payment assistance.
● Mortgage Credit Certificate: DCHFA’s mortgage credit certificate allows eligible first-time buyers to use 20 percent of the mortgage interest they paid as a credit against the balance they owe on their income taxes.
● Maryland Mortgage Program: The Maryland Mortgage Program includes a variety of loans and grants such as a 30-year, fixed-rate deferred payment loan at zero percent interest to cover down payment and closing costs up to 5 percent of the purchase price. Buyers only repay it when they sell or refinance their home.
The program also includes low-interest first loans. Borrowers need to meet several eligibility requirements, including a maximum income in Montgomery and Prince George’s counties of $145,560 for a one- or two-person household or $169,820 for a household with three or more residents. In addition, the maximum home purchase price in those two counties is $653,883.
● SmartBuy: The SmartBuy program allows first-time buyers to pay off their student loan debt when they purchase a home. The student loan debt payoff is limited to 15 percent of the home price, up to a maximum of $40,000. To be eligible, borrowers need to pay off all student loan debt above that amount at the time of the home purchase.
● Mortgage Credit Certificate: Home buyers with an income of $145,560 to $169,820 can take an income tax credit up to 25 percent of the mortgage interest paid on their loans through the Maryland mortgage program.
● Virginia Housing Development Authority down payment grant: In Northern Virginia, first-time buyers with a maximum income of $97,520 for a household of one or two people or $113,840 for a household with three or more people can qualify for a down payment grant of 2 percent or 2.5 percent of the home price. The maximum home price to qualify for the grant is $500,000.
• VHDA loans: VHDA offers a variety of low interest loans, including conventional loans, Federal Housing Administration loans, Veterans Affairs loans and Agriculture Department loans with and without down payment assistance. Borrowers need to have a maximum debt-to-income ratio of less than 45 percent and a minimum credit score of 620 to 660, depending on the loan program.
Income limits in Northern Virginia range from $125,700 for a one- or two-person household to $146,700 for a household of three or more people. The maximum eligible home price is $500,000.
● Mortgage tax credit certificate: First-time buyers who use VHDA loan programs to buy their home may also be eligible for a mortgage credit certificate. The tax credit can be used for the entire time the borrowers keep their loan and gives them a credit on their federal income taxes for the first 20 percent of the mortgage interest they pay.