Barry Glassman
WTOP Financial Contributor

WASHINGTON — Buying a home for the first time can be both an exhilarating and scary experience. While there are many challenges to making the purchase, the highest hurdle for many is saving enough for the down payment.

From the early 2000s until the crash of the housing and financial markets in 2008, lenders had relaxed their requirements to the point that many homebuyers didn’t need much of a down payment, if at all. While those times of easy credit are over, people can, once again, put down less than 20 percent when buying a home. Interest rates remain historically low making this an excellent time to buy a home.

What most people don’t know, however, is that the D.C. metro area has many programs designed to give a leg up to first-time homebuyers. Virginia just announced their First Time Home Savings Plan that provides tax incentives to help more first-time buyers make the move. In fact, I was pleasantly surprised at how many programs are also available in D.C. and Maryland with incentives for home buyers. I’ve listed many of these later in this article.

While a saving for a down payment that could be in the tens-of-thousands may seem daunting, there are many ways to save, and you may need to be creative to meet your savings goal.

1. Save more: Consider cutting back on your everyday expenses. Decide what you can live without until you have enough saved. Managing your money has never been easier. With online banking and apps to help you know what you’re spending, this information is literally at your fingertips. Here’s a great resource to find the right app: Top 3 Financial Apps for Managing Money.
2. Generate more income: Even if a second job is temporary to meet this goal, if it’s possible (and often isn’t), this will help you reach the goal sooner. Once you have enough saved, you can say so long to your second employer.
3. Sell something: Maybe you can do without a car (or second car) or have other valuables, like jewelry or collectibles that you can live without. These may add thousands to your down payment war chest.
4. Borrow it: You may be fortunate enough to have a relative or friend who is willing to lend you the money. Some states, like Virginia, even allow a parent or friend to establish an account to gift someone the money for a first-time home purchase. They benefit, too, since they don’t have to pay state tax on the interest or capital gains earned on those funds.

Virginia, Maryland and the District of Columbia can help first-time homebuyers save literally thousands of dollars. I’ve listed several of these programs in our area with links to their websites for more information.

In Virginia:

First Time Home Savings Plan

• Save up to $50,000 in an account
• Earnings on those funds – interest and capital gains – are free from state taxes forever
• Accounts can grow up to $150,000
• Must be a first-time home buyer
• No income limit for eligibility
• A parent, grandparent, friend, etc., can put money into the account and give it to a first-time home purchaser
• Can use money to pay for another person’s closing costs as long as they are a first-time homebuyer
• Can claim FHSP status as part of tax return to be exempt from state tax as they accumulate funds over time in the account to be used for first-time home purchase

D.C.:

DC Open Doors

• Provides down payment assistance to homeowners who may exceed the income levels of other assistance programs.
• Individuals earning up to $123,395/year are eligible
• Need to have a credit score of 640 or higher and a maximum debt-to-income ratio of 45 percent.
• Program offers loans up to 3.5 percent of the home price to be used as a down payment
• 20 percent of loan is forgiven for each year the homeowner stays in the home

Home Purchase Assistance Program:

• Eligible first-time homebuyers or those who have not owned any residential real estate within three years of the application
• They can receive interest-free loans (up to $40,000) and help with closing costs (up to $4,000)
• There’s a long eligibility list some of which includes: head of household and first-time home buyer; low-to-moderate income resident; cannot have owned real estate within the past three years; must be used to purchase the borrower’s primary residence which must be in the District, etc.

Employer Assisted Housing Program:

• For first-time homebuyers who work in D.C.
• Match down payment up to $1,500
• Loan deferral up to $10,000
• Income property tax credits for first five years
• Max price for house – $417,000

While not specifically for first-time homebuyers, these D.C. programs are worth mentioning.

Lower-income Home Ownership Tax Abatement:

• Eligible buyers could enjoy up to five years without property tax.
• Income requirements and house must not exceed $356,000

Individual Development Account:

• Designed to help lower-income residents buy a home
• Eligible participants set up a savings account which is held in escrow
• The participants savings are matched dollar-for-dollar while attending classes on financing and budgeting before purchasing a home

In Maryland:

Maryland HomeCredit Program

• Provides eligible homebuyers with a tax credit equal to 25 percent of the value of their mortgage interest payments up to $2,000 each year for the life of the loan
• Must meet income limits requirement (broken down by county)
• Cannot have owned a home in the past three years unless they are purchasing a home in a “targeted” area
• Maximum eligible home price is $417,000

Down Payment Assistance and Partner Match

• Similar to DC Open Doors Program
• Eligibility includes income limits of up to $128,760 for a household of up to two people
• Participant must live in the home
• Used to help pay for things like a down payment, closing costs, prepaid/escrow expenses and home inspection
• May be available in form of zero-interest deferred loans, forgivable loans or outright cash grants

Editor’s Note: Barry Glassman, CFP