Written by Tim Savoy
“I can’t afford the down payment.”
“I have no idea where to start.”
“My income is above the threshold to qualify for first-time buyers programs.”
“There is absolutely no way I can buy while single and have college debt still.”
Every day, I hear the same excuses from clients who want to purchase their first home. These excuses, while valid for some, are myths in the buying process.
The reasons to purchase over renting are discussed frequently. In the long run, buying is more cost-effective than renting (by about 35 percent in D.C.). For any buyer who lives in their property as their main residence, the Homestead exemption lowers their assessed tax value by $70,200. Not only is purchasing cheaper by the month, but it also delivers annual returns.
Let’s state the obvious: Buying a home can be a scary process for anyone, let alone purchasing for the first time. Another reality, while many do purchase with cash, not everyone has the liquidity to make a first purchase in cash. For many first-time buyers, a majority of life savings goes toward a down payment of 20 percent to avoid a less desirable loan product. For many, the words private mortgage insurance (PMI) causes fear. However, many do not realize that your PMI on a purchase with less than 20 percent down can be built into the rate of your loan. Moreover, PMI is tax-deductible when your homeowner’s adjusted gross income (AGI) is less than $100,000, and still deductible, though reduced, when above this threshold.
Purchasing in D.C. and the surrounding areas for the first time does have its incentives. For example, DC Open Doors is a great opportunity for first-time buyers to receive a great loan while making a low down payment. On the surface, the program is simple, you can qualify if you make up to $123,395 a year, a much higher ceiling than the average first-time buyer may expect. Moreover, the maximum loan amount is $417,000, easily allowing a first-time buyer to purchase a variety of housing across the city. Even better, DC Open Doors has some products with the option of down payment forgiveness with 20 percent of your down payment forgiven each year for five years.
Perhaps a program like DC Open Doors isn’t the right product for you to finance your first home. Many lenders have products tailored to buyers who are hoping to make a low down payment. For example, one of my preferred lenders at First Home Mortgage, David Toaff, assists his clients with loan products that provide a maximum $625,500 loan with only 5 percent down. Moreover, the same lender can provide a loan of $850,000 with just 10 percent down. The takeaway message here is that financing is possible at all levels of income and price points without the industry standard 20 percent down.
In all honesty, purchasing real estate relies heavily on relationships. For a first-time buyer, find a lender who specializes in working with first purchases. Many look first to their bank, many times a national or international financial institution, to finance their purchase; however, sometimes the best lender isn’t always the one you bank with. Instead, look to a more local mortgage brokerage (in fact, feel free to call David with First Home at 610-348-3772).
Finally, there is nothing wrong with searching in the long-term. Yes, mortgage rates are lower now than they have been in a year, and we do not know when this trend will reverse (have no doubt, rates will have to rise eventually). Regardless of your timeline, take the first steps in the buying process; find a lender and real estate agent you can trust. I can promise you will not regret the decision to purchase your first home.
This article first appeared in the Washington Blade. Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. Reach him at 202-400-0534 or firstname.lastname@example.org.