Despite the end of the federal homebuyer tax credit - home-purchase contracts had to be signed and ratified by April 30 to qualify - potential homebuyers have plenty of other opportunities for down-payment and closing-cost assistance along with low-interest mortgage loans that can make it easier to afford a home.
Some programs are limited to first-time buyers; others require homeowners to buy property within a certain area or are restricted by income level. Some programs are available for government employees or employees of participating employers. Every homebuyer should consult with a knowledgeable local Realtor and lender and also research on his or her own to be certain not to miss out on some potentially valuable assistance.
"The District's first-time homebuyer tax credit of $5,000 is a great option because you can have owned property in other locations outside the District," says Steve Dean, a Realtor with Re/Max Allegiance in the District. "As long as the buyers have not owned within the previous the year in the city, they can qualify."
The D.C. first-time homebuyer tax credit is limited to households with incomes less than $90,000 if single or $130,000 if married filing jointly.
The D.C. Tax Abatement Program offers a five-year exemption from paying property taxes. This program is limited to homes with a purchase price of less than $319,920 and also has buyer income limits starting at $53,760 for a single person.
"The D.C Tax Abatement Program not only saves you money on taxes for five years, but it exempts homebuyers from paying the 1.1 percent transfer and recordation taxes that are normally paid at the closing," Mr. Dean says.
The D.C. Bond Program offers a low-interest loan along with $10,000 in down-payment and closing-cost assistance. While 30 percent of the bond funds are available for mortgage loans to all buyers of primary residences in the city, the down-payment and closing-cost assistance is limited to households with an annual income of 80 percent or less of the area's median income.
Mr. Dean recommends that buyers talk to their agent and their lender about potential ways to control the upfront costs of buying a home.
"Sometimes you can write an offer to purchase that allows the seller to pay all the closing costs so that the buyers can concentrate all their cash on the down payment," Mr. Dean says.
A variety of programs that can help buyers with cash are available from government and private sources.
"Coldwell Banker has introduced our own Buyer Bonus program in anticipation of the ending of the federal homebuyer tax credit," says Chris Upham, a Realtor with Coldwell Banker Residential Brokerage in Alexandria, Va. "Home sellers who opt to participate in the program will credit buyers 3 percent of the sales price up to $8,000."
There is no deadline for settlements on properties in the Coldwell Banker program, but contracts must be signed by July 31.
Michelle Mathews, a home mortgage consultant with Prosperity Mortgage Co. in Clarksville, Md., says most consumers are not aware of the significant difference a low mortgage interest rate can make in the affordability of a home purchase.
For example, a $400,000 loan with an interest rate of 6.5 percent will require monthly payments of approximately $3,110. With a loan at 4.8 percent, the monthly payments will be approximately $2,680.
"Buyers can take advantage of these low rates and have significantly lower monthly payments than if they had bought a home a year or so ago," Mrs. Mathews says. "Buyers who are challenged to come up with the cash for a down payment should look into FHA loans, which still require only 3.5 percent of the purchase price for a down payment. Those who have served our country can also apply for a VA loan, which doesn't require any down payment at all."
Mrs. Mathews says some programs are available for closing-cost assistance from individual counties, although these often are restricted by the income and assets of the homebuyers. Many of these programs also require a homebuyer education seminar, so potential buyers should allow themselves extra time to attend classes before they begin house hunting.
"The best way to find out about these programs is to go to the county government website where the home to be purchased is located," Mrs. Mathews says. "Otherwise, I think it makes sense to ask a lender when you interview them if they can help you find out about potential sources of funding for a home purchase."
The Maryland Mortgage Program offers low-interest loans to buyers who qualify by income level and by the cost of the home they are buying. Participants can apply for down-payment and closing-cost assistance, some of which may be matched by some employers.
The Virginia Housing Development Authority also has down-payment and closing-cost assistance programs along with low-interest loans. Participation in these programs requires homebuyer education courses and is limited by income and the sales price of the property.
Mr. Upham discusses financial options with potential buyers during the initial consultation to find out whether they have the savings and income needed to buy the type of home they want.
"At the very first consultation, I generate a spreadsheet with estimates for closing costs and a down payment, along with a budget, including the monthly condo or homeowner association fee and the principal, interest, taxes and insurance," Mr. Upham says. "Buyers sometimes think they know their price range because they have seen a house they like at a certain price, but they are not always necessarily realistic. Going over their savings and the budget spreadsheet develops a more realistic picture."
If there is a savings gap or a low credit score that prevents the borrowers from qualifying for the lowest possible rates, Realtors and lenders can make suggestions for increasing the availability of cash and improving the credit score.
"I can work with clients to develop a time frame for their savings and also give them suggestions for finding places or people who can help them with closing costs or a down payment," Mr. Upham says. "The important thing is to be realistic from the start."
Mrs. Mathews says buyers should work with a recommended lender who is familiar with all the available state and local programs.
"In addition to government programs, another option can be a family gift of cash for the down payment," Mrs. Mathews says. "Sometimes several family members will be willing to contribute, which is fine as long as each person signs a gift letter stating that they do not require the money to be paid back."
Mrs. Mathews also recommends a secured loan from a bank as a possibility to use for the down payment, as long as the borrowers have sufficient income for both the loan and their mortgage payments.
"A short-term loan secured against a car that they already own free and clear can be an option for someone who does not have enough cash on hand but has plenty of income, good credit and wants to take advantage of low interest rates," Mrs. Mathews says.
STATE AND LOCAL HOUSING RESOURCES
- Arlington County Department of Community Planning, Housing and Development, Housing Information Center; www.arlingtonva.us/Departments/CPHD; 703/228-3765
- District of Columbia Housing Finance Agency; www.dchfa.org; 202/777-1600
- District of Columbia Housing Authority; www.dchousing.org; 202/535-1500
- District Department of Housing and Community Development; www.dhcd.dc.gov; 202/442-7200
- Fairfax County Department of Housing and Community Development; www.fairfaxcounty.gov/homebuyer; 703/246-5087
- Maryland Department of Housing and Community Development; www.dhcd.state.md.us; 410/209-5800
- Prince George's County Department of Housing and Community Development; www.co.pg.md.us/Government/AgencyIndex/HCD; 301/883-HOME
- Virginia Department of Housing and Community Development; www.dhcd.virginia.gov; 804/371-7000
- Virginia Housing Development Authority; www.vhda.com; 804/782-1986
- Virginia Individual Development Accounts Program; www.dhcd.virginia.gov/VIDA; 888/VIDA-WIN
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