For many, the American dream of owning a home feels out of reach. However, there are always options to get your foot in the door! One solution we are seeing in California, which may be coming to the East Coast is looking towards a 40—or 50-year mortgage instead of the traditional 30-year loan. 

A New Approach? 40- and 50-Year Mortgages

Extending mortgage terms to 40 or 50 years could provide the financial flexibility needed to make homeownership achievable.

The DMV: Lack of Inventory + Competition = How Could 40- and 50-Year Mortgages Help? 

The median home price in Northern Virginia is around $600,000, while the median household income is $80,000 to $85,000 per year. To afford such a home, a household must earn $140,000 annually—more than two times the median income. A 30-year mortgage at 6% would require monthly payments exceeding $3,596, consuming over 70% of their income. A 40-year mortgage could lower this to around $3,324 and a 50-year mortgage to $3,183, making homeownership more feasible.

In Washington, D.C., the median home price is around $650,000, while the median household income is approximately $90,000 annually. To afford such a home, a household must earn about $150,000 annually. A 30-year mortgage at 6% would require monthly payments exceeding $3,897. A 40-year mortgage could lower this to around $3,600, and a 50-year mortgage to $3,450.

In Montgomery County, Maryland, the median home price is approximately $550,000, while the median household income is around $110,000 per year. To afford such a home, a household typically needs to earn about $120,000 to $140,000 annually. A 30-year mortgage at 6% would require monthly payments exceeding $3,297. A 40-year mortgage could lower this to around $3,050 and a 50-year mortgage to $2,920.

Why Are Home Prices So High?

Several factors contribute to high home prices:

• Lowering interest rates: Low rates fuel demand.
• Housing shortages: Limited supply in desirable areas drives up prices.
• Demographic shifts: Millennials entering the market increase demand.
• Rising construction costs: Supply chain issues and labor shortages escalate costs.
• Investor activity: Institutional investors reduce inventory.

The DMV is generally popular because of stable government jobs and the fact that people are always in and out of the area for jobs. This makes home prices continue to rise (especially within the Beltway, i.e., within driving distance to DC). For more on why prices are high in the DMV, click here. 

What are the Drawbacks of Longer Mortgages? 

Longer terms lead to higher interest payments and slower equity growth. Flexible payment options can mitigate these drawbacks. More importantly, lower monthly payments can make the difference between owning and renting.

What are the Benefits of Longer Mortgages?

Extending mortgage terms provides several benefits:

• Lower monthly payments: A 50-year mortgage on a $900,000 home could lower payments by $850 per month compared to a 30-year mortgage.
• Improved borrower qualifications: Lower payments make it easier to qualify.
• Increased buying power: Reduced payments allow buyers to afford homes otherwise out of reach.
• Flexible payment options: Features like “Pick-a-Pay” offer flexibility.

The Bottom Line: 

Owning a home doesn’t have to be out of reach! There are always ways to get creative with your monthly payment. Chat with you lender to see what the best available options are to you. By extending terms and embracing flexible payment options, there are many ways to get creative so you can afford your first home. 

If you’re looking to buy or sell in the DMV, we’d love to help. Reach out today!

We’re realtors serving the DMV who love sharing everything about where we live and the neighborhoods we explore. Follow along by signing up for our weekly newsletter, which includes local favorites and the latest and greatest in real estate.