5 Ways to Afford Your New Home

Buying a home is not only a huge financial decision, but likely the most significant financial decision one makes during their lifetime, and therefore it comes with a great financial responsibility. If this is your first home, learning about the home buying process can almost seem daunting, especially when you hear the words “down payment”.

Most new buyers assume that they must have and put down a 20% down payment in order buy a home. Knowing that the average home sold, in Washington DC, for $683,940 last year, and 20%, of that average, would amount to $136,788, most first-time home buyers would go running back to renting. The truth is, a 20% down payment only offers two perks: a lowered monthly mortgage payment and the avoidance of mortgage insurance. So, although helpful, putting down such a large lump sum of money is not always necessary or obligatory. Think of the down payment as a lender’s insurance and your incentive to make your payments. Most mortgage lenders usually require a minimum down payment of 3%, depending on your credit history, type of home you are trying to buy, or your reason for buying it (investment/rent versus to reside in yourself).

  • Federal Housing Administration Loans (FHA Loan) have been around for 80 years! Usually requiring about 3.5% down, FHA loans are one of the more popular and well-known mortgage lenders. For those interested in applying for an FHA loan, applicants are typically required to have a minimum FICO score of 580 to qualify for the low-down-payment advantage of 3.5%. If your credit score is below 580, this doesn’t necessarily exclude one from an FHA loan.
  • Veterans Department Loans (VA Loan) were established a little over 70 years ago as part of the original GI Bill of Rights for returning WWII veterans. Today they continue to be a reward and act as an incentive for those who have served our country. Like this policy, Navy Federal Credit union goes one step further and offers 100% financing to qualified members buying a primary home.
  • The US Department of Agriculture (USDA) also known as the “Farmer’s Loan” is a rural housing incentive more commonly used in towns with a population of 25,000 or less. It offers a low interest and low-down to no down payment mortgage option for families that fall into the low to middle-income range. This program is intended for first-time buyers and has some exceptions to the income guidelines but no exceptions to the geographical eligibility. Unfortunately, because of the popularity of this program, it often runs out of the funds before the end of the fiscal year.
    • This loan is NOT limited to just farmland, check out this link to find eligible areas in Virginia and Maryland.
    • The USDA mortgage comes from a bank, and there is no mortgage insurance. Instead, the USDA levies a 1 percent upfront guarantee fee, which can be rolled into the loan amount, and an annual guarantee fee of 0.35 percent of the loan balance.
    • Want to be able to figure out the total costs and payments of a USDA loan? Utilize the USDA Loan Calculator and see how a USDA loan could help you.
  • A Conventional 3% down program is limited to a loan size of $424,100 or less. The Federal Housing Financing Authority controls this loan, originally the Fannie Mae 97% loan-to-value program. Less pricey than an FHA loan, this was and still is geared towards Millennials.
  • Last, but not least, there are always State and Local assistance programs. Usually geared towards low and middle-class buyers, you will find that a majority of these programs are First-Time Homebuying programs meant to stimulate neighborhoods or act as a buying incentive for those who work in the civil services. Here in DC, we have:
    • DC Open Doors
    • HPAP Home Purchase Assistance Program
    • NACA Neighborhood Assistance Corporation America
    • DC’s MCC Mortgage Credit Certificate
    • EAHP Employer Assisted Housing Program
    • IZ and ADUs Inclusionary Zoning and Affordable Dwelling Units

Did you know that more than half of MG Residentials buyers for last year were FTHBs? Give us a call if you, or someone you know, is a FTHB and would like to work with an experienced realtor who can walk you through these programs.