First Time Home Buyer
Most people quality for zero down payment purchase financing in Washington DC. And it’s easy! New income cap for 2020: $151,200(based on applicant qualifying income, not household income). Maximum loan amount for 2021 is $822,375 for conventional loans, $548,250 for FHA. With conventional financing, 100% financing is available to purchase prices up to $565k, or 98% financing if above that.
The DC Open Doors loan provides zero down payment financing to purchasers in Washington DC. The program lends the required down payment to the purchaser, which is eventually repaid (with no interest due) when the homeowner sells, moves out, or refinances their mortgage. Both conventional and FHA financing options are available, which means that the program will cover either the required 3% (conventional) or 3.5% (FHA) down payment. Also, on the conventional DC Open Doors Program, the purchaser is eligible for a reduction in their mortgage insurance payments!
Eligible first time buyers can also acquire a mortgage credit certificate, or MCC, which will rebate 20% of their mortgage interest as a federal income tax credit. This reduces the effective interest rate by a fifth. Learn more here.
You can also consider participating in the program, and forego the down payment assistance loan and therefore be offered a lower interest rate. Should you wish to forego the down payment assistance, on a conventional loan the minimum down payment is 3%, and on an FHA it is 3.5%.
HPAP, or the Home Purchase Assistance Program, is built for first time buyers in Washington DC needing assistance with the down payment and closing costs. Approved applicants are eligible for a repayable loan for both closing costs and down payment funds. The down payment assistance loan can range from about $16,000 to $80,000, and the closing cost assistance up to $4,000.
The minimum cash contribution for a buyer when using HPAP funds is either $500 or half of their savings above $3,000.
The HPAP loan repayment is deferred for five years after the purchase, and then must be paid back over a forty year period with no interest. The remaining sum is due in full upon moving out or selling. Therefore if you plan to move out of the property and convert it to a rental, this program may not be a good fit.
The income limits for the program vary by household size, and is found here.
So in summary – here is the guide to HPAP financing:
- The borrower must apply through a community based organization and here is the list of all organizations you can work with: https://dhcd.dc.gov/node/702332. I have the most experience with HCS, ULS, and LEDC
- The borrower first attends a 2hr orientation session. They then submit their documentation to the community organization and wait for a “notice of eligibility.” Processing time for this is about 2 months (currently). One of the docs required for the notice of eligibility is the credit report. If I have a credit report for a borrower, I can with permission send this to the community organization.
- After they get the notice of eligibility they must attend a first time buying class. The class is 8 hours on a Saturday and is offered once per month. After the class there is homework to submit to the counselor, and then they receive the 8 hour home buying class certificate.
- Once the borrower has both the notice of eligibility and the counseling certificate, they are pre-approved to use HPAP financing. This whole process preceding this moment typically takes about 6-8 weeks.
- They then shop for a property, when it comes to writing an offer, closings with HPAP typically take 45-60 days.
- When submitting the offer, the HPAP addendum must be signed by the parties — please request this document from me.
- The home inspection must be done by a licensed home inspector. If the inspector requires anything be fixed, they will need to re-inspect post-repair. After the home inspection “passes,” they will give you a form to provide to HPAP, please also send this and the home inspection to me. Here is a link to the required form: http://www.dchfa.org/wp-content/uploads/2018/06/hpap-inspection-authorization-fillable.pdf
- Make sure to complete a termite inspection and send that to me as well. HPAP requires this on all properties, including condos.
DC Tax Abatement
DC Tax abatement is an incredible program, which allows for:
1. The buyer does not pay for the recordation tax, which is .725%-1.45% of the sales price. Also, instead of the seller paying the transfer tax (1.1%-1.45%), that transfer tax is credited to the buyer. The net change is a reduction in cost to the buyer for 1.825%-2.9% of the sales price.
2. The buyer also will not pay for property taxes for five years. This, however, will not begin until the following October after buying.
In order to be eligible and apply for these benefits, you should make sure to work with a title company in DC who is familiar with tax abatement so they can help you apply.
There are income restrictions to the program based on household income. This is for everyone who will be living in the home, not necessarily just those who will own the home. The income limits effective October 2018 and can be found here.
We can offer down payment assistance financing in Virginia, made possible through the Virginia Housing Development Authority (VHDA). VHDA offers conventional, FHA, USDA, and VA loan programs. You can also apply for an MCC to boost your income tax savings from mortgage interest.
You don’t need to be a first time buyer…you just cannot have owned real estate within three years. The minimum credit score required is 640 for conventional financing and for FHA and VA it is 620. If you meet the income limits, then you can receive a grant of 2% of the sales price. For a household of 1-2, that income cap is $110,500. For a household of 3+, it is $129,000.
If your income exceeds these limits, you may still be eligible for a loan of 3%-5% of the sales price. The income cap for a down payment assistance loan for a 1-2 person household is $138,200, or for a household of 3+ it is $161,300.
For both the grant and loan program, you must contribute at least 1% of the sales price towards your home purchase. To get assistance, your net worth (savings and investments) may not exceed half of the sales price of the home you are purchasing.
MD Down Payment Assistance
The Housing Opportunities Commission loan (HOC) is a first time buyer loan program built for purchasers in Montgomery County. There are two major benefits to the HOC loan program:
- 3% down payment assistance forgivable loan. Montgomery County provides HOC borrowers a 3% loan to cover the majority of the down payment. This loan is forgiven after living in the property for five years as a primary residence.
- For borrowers who also work in Montgomery County, the county will also provide a repayable loan of 5% of the sales price, up to $10,000. This loan is repaid back to the county over ten years at an interest rate of 5%.
So, particularly for buyers who work in Montgomery County you could find yourself being able to purchase in the county with little to no outlay of cash. As a reminder, typically closing costs represent ~4% of the sales price.
The program may only be combined with either Conventional or FHA financing and is meant for purchasers who have not owned real estate in the past three years. There are income limits to the program as well which are based on your household size. Visit here for income limits.
State of Maryland
The Community Development Administration (CDA) Maryland Mortgage Program (MMP) is a loan program that we offer through the Maryland Department of Housing and Community Development. With MMP financing, you can choose between FHA and conventional financing. However the conventional financing requirements are more strict. There are three major benefits of this program:
- For those who would like assistance with the down payment or closing costs, the program has two options. You could select a lower interest rate mortgage with a repayable, zero interest loan of $5,000 OR 3% of the sales price. This money may be applied to your cash to close, and must be repaid when you move out or sell. Or, you can apply for a grant of 4% of the loan amount. More information at https://alexjaffe.com/grant and the grant program comes with a higher interest rate than the loan program.
- For those eligible for Conventional MMP financing, and incomes under 80% of area medial income ($99,920 in counties surrounding DC), you will be eligible for reduced mortgage insurance.
The minimum credit score for CDA FHA is 660. The minimum credit score for CDA conventional is ~700 (depends on automated underwriting). You don’t need to be a first time buyer to participate in this program, but you can’t own real estate at time of purchase.
For more information, check out Alex Jaffe with First Home Mortgage at: https://alexjaffe.com