Homes in Washington, DC can be expensive. This is especially true for first time DC home buyers, who may get sticker shock from the price of homes on the market. Fortunately, the are many first-time homebuyer programs to help ease the cost of your down payment.
I wrote this Diary of a First Time DC Home Buyer to provide you with information on the many programs that are available to help people just like you purchase their first homes in the city. Following these tips will give you the confidence to take the first step toward your dream of homeownership.
I loved my first house. It was a pretty brick-front townhouse in Southeast Washington, DC with three bedrooms and a garage. I had many great times there and it was a blessing to me as my family grew.
What I didn’t love was the process of purchasing it.
From the time I signed the sales contract, it was well over a YEAR before the house was finished and I could move in. That time was filled with anxiety over when or even if my move would ever take place.
There were construction delays, problems with the builder, and the bank that I used for the mortgage was very slow in processing my paperwork. And of course, I had to keep paying rent for my apartment. My landlord might have retired off my rent payments alone!
My real estate agent was sweet, but she wasn’t very good at guiding me through the process. No one in my immediate family had bought a home in years, so I couldn’t lean on them for advice. I bought a book about buying real estate, but I needed an expert who knew the ins and out of the local DC area marketplace.
That was one of the most stressful times of my life.
Many years and few home purchases later, I am now a licensed Realtor® in Washington, DC, and Maryland. I don’t want anyone to go through what I experienced. Though the market is different today, it is still extremely challenging for first-timers. That is why I work almost exclusively with first time DC home buyers. The experience and industry knowledge of your real estate agent might be the difference between you living your dream now or having that dream deferred.
D.C. First-Time Homebuyer Programs
Fortunately, there are many programs available in the District of Columbia that can make your home buying experience easier. Every first-time home buyer’s situation is unique, but here is a sample of the many programs that I can use to help get you into your first home. These programs fall into two categories: Down Payment Assistance and Credits.
Down Payment Assistance
Saving money for a down payment is often the most challenging step in preparing to purchase your first home. Overcoming student loans and credit card debt can be tough. However, I find that the biggest hurdle for buyers is overcoming the myth that you need a 10 to 20% down payment. Most of my buyers, and in fact, most buyers across the country, finance their purchase using a 6% or less down payment.
The following assistance programs are available for DC homebuyers with various levels of income and credit history:
DC Opens Doors
DC Open Doors is an amazing Down Payment assistance program that helps buyers overcome the obstacle of saving to purchase a home. The program provides fully-forgivable loans which are used to cover the down payment cost. These zero-interest-rate loans require no monthly payment and do not have to be paid back if you don’t sell the home within five years.
Check out this video which describes one resident’s experience with the DC Open Doors program:
Learn more about this incredible opportunity at my blog post about DC Open Doors.
Home Purchase Assistance Program (HPAP)
The Home Purchase Assistance Program, is commonly known by its initials, HPAP. This program provides interest-free loans and closing cost assistance to qualified applicants looking to purchase a home. Up to $84,000 is available for your first home purchase here in the District! That’s incredible!
This program is targeted at moderate-income and low-income families in the city. To find out if you might be eligible and to learn more, check out my blog post about the Home Purchase Assistance Program here.
Depending on the borrower’s income, payments are deferred for five years or longer.
Here is another user testimonial about this program:
Employer-Assisted Housing Program (EAHP)
The Employer-Assisted Housing Program (EAHP) provides financial assistance with down payment and closing costs for District government employees looking to purchase a home in the city. The aid comes in the form of a zero-interest, deferred loan, and a matching grant. The total benefits can be up to $45,00 in value for some employees.
Check out my latest blog post on the EHAP program to get the full details.
June 2019 Update:
On June 10, 2019, Mayor Bowser and Eagle Bank announced a new mortgage assistance program for city employees. The new program will offer a substantial discount on the interest rate for various mortgage loans, including conventional, Federal Housing Administration (FHA), Home Equity Lines of Credit, and FHA rehab loans.
You can find the full details of the announcement here.
Credits and Tax Reductions
Down Payment Assistance programs aren’t the only tool in the toolbox. Washington, DC also offers an assortment of Credit programs to help put cash back into your pocket.
First Time DC Homebuyer Tax Credit
The old stalwart on this list is the First-Time Homebuyer Individual Income Tax Credit. This is a simple $5,000 credit that is applied to your IRS Form 1040 by your tax preparer or tax software. This is applicable when you purchase a primary residence in the District of Columbia during the tax year. You (and your spouse) must not have owned a home in DC during the past year.
This easy to claim credit is like getting free money for making a good decision.
Mortgage Credit Certificate
The Mortgage Credit Certificate (MCC) is a terrific program that allows qualified DC borrowers to claim a Federal Tax Credit of 20% of the mortgage interest paid during each calendar year. This tool help families with low and moderate-income afford the cost of homeownership.
For just about any homebuyer in the District, and MCC would be worth thousands of dollars per year. And the best thing about it is the MCC is effective for the life of your mortgage. The savings really add up!
Visit my recent blog post on the DC Mortgage Credit Certificate to learn more.
First-Time Homebuyer Reduced Recordation Tax Reduction
Started in October 2017, the First-Time Homebuyer Reduced Recordation Tax Reduction significantly reduces the recordation tax for qualified DC Homebuyers, from 1.45% to .725%. This will save you thousands of dollars at the closing table. For example, on a $600,000 home purchase, you would normally pay around $8,700 in recordation tax to the city. With this provision, that tax is reduced to a much friendlier $4,350!
- Buyers must be DC residents or intend to become DC residents with their new home purchase.
- Buyers must earn no more than 180% of the Area Median Income (around $210,000 household income for a family of four)
- The home price must not be higher than $625,000 (adjusted annually for inflation)
A key point to remember is that the application for the reduced rate must be made at the time the deed is offered for recordation. The reduced rate cannot be applied retroactively.
Even More Tools
In addition to the government-sponsored programs listed above, private lenders can also help ease your way into your first home.
Home Ready is a low down payment mortgage designed to help low- to moderate-income borrowers. For a down payment as low as 3% of the purchase price, first-time or repeat homebuyers can get a flexible loan that can help you achieve your dream.
People with credit scores as low as 620 can be eligible, though you will get better pricing with a higher score. Click here to learn more about Home Ready loans from Fannie Mae.
June 2019 Update: Fannie Mae lowered the income limit for borrowers to 80% of the area median income. In the DC area, that is approximately $77,600 for a family of four.
The other mortgage giant, Freddie Mac, also has a loan product designed to help first-time homebuyers. Their program also allows for a down payment of as little as 3%. There are no geographic or income restrictions. That’s right, you can earn as much as you want and still qualify for a low down payment loan!
To learn more about this offering, download this brochure.
Are You Ready?
There are so many tools available to help get you into your first home. There is a lot to think about. I hope that this guide was a helpful starting point for you. Your next step is to call me at (202) 717-2276 today. Let’s chat about your ideas, your current situation, and explore which of these programs might be best for you.
Be sure to leave your email or phone number on this page. I will be sure to reach out so that we can craft a plan just for you. I am ready to put my experience and knowledge to work for you. Let’s get started!