Whether you are new to homebuying or a repeat buyer, the financing process can seem overwhelming. Mountains of paperwork and mysterious acronyms can be intimidating, but help is available from experts on this site, local lenders and homeownership classes designed to build your confidence.
The steps from your initial contact with a lender to your settlement date are demystified on this page, where you can learn about how to compare mortgage rates in Washington, D.C., find local homebuyer programs and resources available for further education, down payment assistance and low interest loans.
Compare Washington, D.C., Mortgage Rates
If you've ever studied mortgage rate ads, you may wonder why mortgage rates can vary so widely. The mortgage rate you pay depends on numerous factors, most importantly your loan qualifications, the size of your down payment and the type of property you are buying. Local conditions in Washington, D.C. also make a difference. For instance, the robust housing market with fast sales and rising prices makes it attractive for mortgage lenders who feel confident their loans will be repaid. Competition among lenders means they will do their best to offer their lowest mortgage rates in Washington, D.C. for qualified borrowers.
Homebuyer Help for First-Time Buyers in Washington, D.C.
First-time homebuyers can access a plethora of resources in the District of Columbia available from lenders, real estate agents, nonprofit organizations and local government. The DC Open Doors program, run by the D.C. Housing Financing Agency, offers down payment assistance and low interest loans for first-time buyers in the District that fit different buyer profiles.
The agency recently introduced a mortgage credit certificate allowing eligible first-time buyers to use 20 percent of the mortgage interest they paid during a calendar year as a credit against the balance they owe on their income taxes.
Polly Donaldson, director of the D.C. Department of Housing and Community Development (DHCD), says one mission of that agency is to produce and preserve opportunities for affordable housing so, as D.C. Mayor Muriel Bowser stated, "Every Washingtonian has a fair shot to live in the District."
DHCD's wide range of programs include:
- Inclusionary Zoning (IZ) Program, which creates mixed-income neighborhoods by exchanging affordable housing units for bonus. Also monitors and enforces Affordable Dwelling Units
- Home Purchase Assistance Program (HPAP), which provides down payment and closing cost assistance for low-to-moderate income District residents who are first-time homebuyers
- Employer Assisted Housing Program (EAHP), which offers loan and down payment assistance to District government employees who are first-time homebuyers
- Negotiated Employee Assistance Home Purchase Program (NEAHP), which provides certain unionized District government employees with down payment and closing cost assistance to purchase a primary residence
- Housing Counseling Services that train and counsel residents on issues such as the home purchase process, homeowner training, foreclosure prevention, credit counseling and budget management, and
- Housing Resource Center, which offers free resources and training sessions about for-sale or rental housing.
First-Time Buyer Financial Assistance in Washington, D.C.
You can search here for various programs offered to first-time buyers in the District of Columbia.
Locate a Housing Counselor in Washington, D.C.
Understanding Home Affordability in Washington, D.C.
Washington, D.C. is among the most expensive housing markets in the U.S., partly because of the desirability of living in the nation's capital and because strong employment and high salaries compensate for high housing costs. Low inventory has increased competition for homes and sent home prices higher, but low mortgage rates help make even expensive homes a little more affordable.
Deciding how much you can afford to spend for a home depends on how much cash you want to use as a down payment and how much you can borrow to finance the rest of your purchase. You should develop your own budget and decide how comfortable you are with your housing payment, which will include principal and interest, property taxes, homeowner's insurance and possibly a condo fee or homeowner association fee. A fixed-rate loan will ensure your principal and interest payments remain the same for the life of your loan.
How Mortgage Rates and Home Prices Affect Monthly Payments
|Metro Area||Estimated Monthly Mortgage Payment*||Q3 2019 (Change from Previous Year)||2018 Median Home Price||2017||2016|
Source: National Association of Realtors Q3 2019 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q3 2019, a 20 percent down payment and a 30-year fixed mortgage at 3.68 percent. Figure includes principal and interest but excludes insurance and property taxes.
Determine How Much You Can Borrow in Washington, D.C.
The amount of money you can borrow to finance your home purchase depends on your loan qualifications and the limits on various loan programs. Since Washington, D.C., is a high-cost housing market, loan limits are higher. If you need to finance a home with an amount above the limits, you would need a jumbo loan. Generally, jumbo loans require a larger down payment of at least 20 percent and often have stricter requirements for borrowers such as a higher credit score, high income and low debt.
Loan limits are established by the federal government and are reviewed and sometimes adjusted annually.
Washington, D.C., Homebuying: Expert Advice
Nela Richardson is former chief economist with Redfin brokerage in Washington, D.C.
Eldad Moraru is a Realtor with Long & Foster Real Estate in Bethesda, Maryland.
Patrick Cunningham is a senior vice president and partner with HST Mortgage in Fairfax, Virginia.
What was the housing market like in the District before and during the housing crisis?
Thanks to a strong local economy tied to the federal government and large government contractors, the housing market didn't fall quite as far in D.C. and rebounded faster than other cities. In the years following the crisis, the city has seen a resurgence in buyer interest spurred by development in new neighborhoods and a growing desire for urban living.
Before the housing crisis prices rose rapidly, multiple offers were the norm and houses sold in days. During the crisis things slowed down dramatically. Prices held steady with slight drops but homes were taking much longer to sell but there were not a lot of foreclosures in D.C.
D.C. did not a have a huge spike in unemployment during the recession, so the aftermath of the crisis was less painful.
Q.What can first-time buyers expect to find today in the state in terms of affordable homes to buy?
First-time homebuyers who rent in the city are increasingly interested in staying in the city when they buy, but affordability is a big challenge. Condos in the District start at about $200,000 and townhomes start at about $450,000, though some neighborhoods have far higher entry-level prices.
In D.C., first-time buyers have a hard time finding affordable homes to buy.
The cost of borrowing is extremely low, especially if you can put down 20 percent, but home prices are not low. Affordability is tough in the close suburbs and D.C.
What is the housing market like in some of the areas of the state that attract first-time buyers?
First-time buyers can expect lots of competition for affordable homes from other first-time buyers, as well as investors and flippers, who are very active in this market. Get your financing in order so you are prepared to act quickly if you see a home you want.
Competition is fierce in the city and prices continue to go steadily up. Multiple offers are common these days, particularly for homes priced in a range for first-time buyers.
The housing market in D.C. is extremely tight for homes in good condition and desirable areas.
Calculate D.C. Closing Costs
While you need cash for a down payment and for an emergency, you also need money for closing costs. Washington, D.C.'s closing costs averaged $1,794 in 2015, below the national average of $1,847. Closing costs include transfer and recordation taxes that vary in other states by county. Since the District of Columbia has only one county, these are consistent throughout the city. However, the city adjusts transfer and recordation fees according to the home's price. If you purchase a home priced under $400,000, the fees will be 1.1 percent of the home price. If you purchase a home above that threshold, you will pay 1.45 percent of the sales price, which adds to your settlement costs.
Average Closing Costs in Washington, D.C.
Source: Bankrate's 2015 survey of closing costs.
Mortgage Refinancing in Washington, D.C.
Mortgage refinancing activity in the District of Columbia has been robust due to the combination of low interest rates and rising home values in recent years.
Low mortgage rates are one reason to refinance in D.C., but some buyers also choose to refinance when they want to change their loan program to eliminate mortgage insurance or shorten their loan term to pay off the balance faster.
"There is a lot of opportunity right now for borrowers to make beneficial changes to their financing," says Cunningham. "Rates are extremely low and because home prices have risen in the last few years, we can often remove mortgage insurance and lower the rate a little at the same time. This saves a bunch monthly."
Cunningham also says buyers who purchased their home with a first and second loan are often able to refinance those two loans together to lower their monthly payments, particularly because of rising home values in the city. Homebuyers frequently opted to avoid mortgage insurance by buying their home with a 10 percent down payment, an 80 percent first loan and a 10 percent second loan in the city, especially during the frenzied housing market before the crisis. Now, those buyers are refinancing their second trust to take advantage of lower interest rates.
More Mortgage Resources for the District of Columbia
Multiple nonprofit groups and government agencies provide support for homebuyers, mortgage loan borrowers and homeowners. Some of them include:
Provides loan-based assistance and matching down payment funds to District government employees purchasing a home in the District for the first time.
Provides opportunities for low to moderate income District residents to become first-time homebuyers with interest-free loans.
Provides free listing service that provides easy access to information about housing opportunities within the District of Columbia.
Trains and counsels residents on pre-purchase, foreclosure prevention or mitigation and credit counseling.
Creates mixed income neighborhoods by exchanging affordable housing units for bonus density. Monitors and enforces Affordable Dwelling Units throughout the city.
Provides certain unionized government employees with down payment and closing cost assistance toward the purchase of primary residence in the District.
Regulates the formation and registration of condos or cooperatives. Handles the conversions to condo or co-op use, the Tenant Opportunity to Purchase Act (TOPA) as well as the District Opportunity to Purchase Act (DOPA).