If you are hoping to be the first generation in your family to buy a home, you could get some help from the government under President Joe Biden’s proposed Down Payment Toward Equity Act of 2021.
During his campaign, President Biden had proposed giving first-time homebuyers a tax credit of up to $15,000 to help boost their entry into the housing market.
However, the draft legislation in front of the House Financial Services Committee on April 14 is slightly different from Biden’s initial homebuyer credit idea. Here's what the bill before the committee contains.
Biden’s homebuyer credit targets socially and economically disadvantaged individuals.
The proposed act takes a more significant attempt to create equity in the housing market. The bill proposes first-time homebuyers who qualify as “socially and economically disadvantaged” can receive up to $25,000 in assistance.
Socially and economically disadvantaged individuals are defined in the abill as individuals identifying as Black, Hispanic, Asian American, Native American, or any individual subjected to racial or ethnic prejudice or cultural bias, states the National Council of State Housing Agencies (NCSHA) in a summary of the proposed legislation.
Individuals who don’t meet this requirement but are economically disadvantaged and qualify as first-generation homebuyers could receive up to $20,000 under the plan.
The Act defines first-generation homebuyers as those whose parents or guardians have never owned a home or have lost a home through foreclosure, short sale, or deed-in-lieu of foreclosure.
Individuals who grew up in foster care also qualify as first-generation homebuyers.
Biden’s homebuyer plan also has certain income restrictions.
Under the income requirements of the Down Payment Toward Equity Act, homebuyers must have an income at or below 120 percent of area median income (AMI) for either the area where the home is located or the area where the homebuyers currently reside.
For homebuyers purchasing homes in high-cost areas like San Francisco or New York City, the income limit is increased to 180 percent of AMI for the area where the home is purchased.
Assistance received through the act could be used for the down payment, closing costs, or payments to reduce the interest rate on a mortgage.
Homebuyers who receive assistance would be required to complete a home purchase counseling program through an approved Housing & Urban Development agency.
Homebuyers don’t have to pay back their assistance if they stay in the house for at least five years. If they move out of the home in less than a year, they must pay back the total amount of assistance.
If they move out of the home in between one and five years, the amount they are responsible for paying back will decrease by 20 percent for each year they live in the house. For example, a homebuyer who receives $20,000, but then moves out of the home after three years would have to pay back 60 percent or $12,000 of their assistance.
How Biden's homebuyer plan would be administered:
The proposed plan would provide funding starting this year through 2030. Under the program, HUD would provide states with grants to pass on to eligible homebuyers.
States receiving the funding must first adopt a plan for affirmatively further fair housing. HUD officials will also look at a state’s population, median home prices and racial disparities in homeownership when determining how much funding to provide each year.