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Buying a home in Washington DC
According to Zillow, the typical home value in Washington DC is much higher than the typical value of $272,446 across the US. The typical home value in DC is $672,910, and home values have increased 3.1% over the past year.
Washington DC first-time homebuyer programs
The DC Housing Finance Agency has several options for first-time homebuyers:
- DC Open Doors: You can get a low rate and discounted mortgage insurance costs through a participating lender. You also may get a down payment assistance loan. You’ll either repay the loan after 30 years, or upon selling the home or transferring the property to another person.
- Mortgage Credit Certificate: Claim up to 20% of the interest paid on your mortgage on your federal taxes each year.
- Home Purchase Assistance Program: If you’re a first-time homebuyer, get a no-interest loan for down payment and closing cost assistance.
- DC4ME: If you’re a DC government employee, you can get a low rate on a first trust loan. You may also get 3% for a down payment assistance loan, which doesn’t charge interest.
- Federal Housing Administration mortgage: You can get a down payment of 3.5% with a credit score of at least 580, or get a mortgage with a credit score between 500 and 580 with 10% down using this loan, which is also called an FHA loan.
- United States Department of Agriculture mortgage: These loans, also called USDA loans, can be useful if you are a low-to-moderate income borrower looking to buy a home in a rural or suburban area.
- Veterans Affairs mortgage: These mortgages, also called VA loans, are for active-service military members or veterans, or spouses of members who have died and can provide lower interest rates than conventional mortgages.
Refinancing your mortgage in Washington DC
Rates are at historic lows right now, so it could be worth it to switch your current mortgage for one with a lower rate — especially if the new rate would be significantly lower.
You don’t necessarily need to refinance with the same lender you used for your initial mortgage. A different company may offer you a better deal this time around. Shop around for a lender who will offer the lowest rate based on your credit score and debt-to-income ratio, and the one that charges relatively low fees.
How to get a low interest rate on your mortgage
Here are some tips for landing a good interest rate on your mortgage:
- Save for a down payment. With a conventional loan, you may be able to put down as little as 3%. But the higher your down payment, the lower your rate should be. Rates should stay low for a while, so you probably have time to save more.
- Increase your credit score. Many lenders require a minimum credit score of 620 to receive a mortgage. But the higher your score, the better your rate will be. The most important factor for boosting your score is to pay all your bills on time.
- Lower your debt-to-income ratio. Your DTI is the amount you pay toward debts each month, divided by your gross monthly income. Most lenders want to see a DTI of 36% or less, but an even lower DTI can land you a lower rate. To improve your DTI, pay down debts or consider opportunities to increase your income.
- Choose a federally backed mortgage. If you’re eligible, you might consider a USDA loan (for low-to-moderate-income borrowers buying in a rural area), a VA loan (for military members and veterans), or an FHA loan (not designated for any particular group). These loans typically come with lower interest rates than conventional mortgages. As a bonus, you won’t need a down payment for USDA or VA loans.
Improving your financial situation and choosing the right type of mortgage for your needs can help you get the best interest rate possible.
Historic mortgage rates for Washington DC
By looking at the average mortgage rates in Washington DC since 2010, you can see trends for 30-year fixed mortgages, 15-year fixed mortgages, and 7/1 adjustable mortgages:
Seeing how today’s rates compare to historic DC mortgage rates may help you decide whether you’d be getting a good deal by getting a mortgage or refinancing now.
How do 30-year fixed rates work?
You’ll pay a higher interest rate on a 30-year fixed mortgage than on a shorter-term fixed-rate mortgage. The 30-year fixed rates used to be higher than adjustable rates, but recently 30-year terms have been the better deal.
Monthly payments are relatively low for a 30-year term, because you’re spreading payments out over a longer period of time than you would with a shorter term.
You’ll ultimately pay more in interest with a 30-year term than you would for a 15-year mortgage, because a) the rate is higher, and b) you’ll be paying interest for longer.
How do 15-year fixed rates work?
You’ll pay less on a 15-year mortgage than on a 30-year loan, for two reasons: 15-year fixed rates are lower, and you’ll pay off the mortgage in half the time.
Your monthly payments will be higher on a 15-year mortgage, though. You’re paying off the same loan principal in a shorter amount of time, so you’ll pay more each month.
How do ARMs work?
With an adjustable-rate loan, your rate stays the same for the first few years, then changes periodically. For example, your rate is locked in for the first five years on a 5/1 ARM, then your rate increases or decreases once per year.
ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or lower than ARM rates. It could be in your best interest to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate increasing later with an ARM.
If you’re considering an ARM, you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.
Mortgage and refinance rates by state
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