The Biden administration has proposed a $25,000 First Time Home Buyer Grant to assist qualifying buyers in becoming homeowners.
On April 14, 2021, lawmakers presented 17 housing-related bills. The Downpayment Toward Equity Act of 2021, also known as the $25,000 First-Time Home Buyer Grant, is one of the 17 bills presented.
The grant addresses a related campaign promise made by the Biden administration: to provide Americans with direct financial assistance to help them purchase quality housing.
The best thing is that it is not a tax credit. For renters who have struggled to take the first step toward homeownership, a new era will begin with the passing of this bill.
Down Payment Toward Equity Act of 2021
The Down Payment Toward Equity Act of 2021 will grant qualifying first time home buyers $25,000 in cash, which they could use for a down payment, mortgage interest rate reductions, closing costs, and other house purchase expenses.
As of April 19, 2021, the following are the eligibility requirements for home buyers:
- Should be a first-time home buyer
- Should adhere to the income limitations for that specified area
- Should buy a house to use as a primary residence, and not as an investment or a second home
- Should use a government-backed mortgage
- Should be a first-generation home buyer, or have parents/legal guardians who defaulted on a home loan, or lived in foster care during their lifetime
Things to Know About the Biden First Time Home Buyer Grant Program
1. The Importance of This Grant for First Time Home Buyers
The Down Payment Toward Equity Act of 2021 aims to assist renters in buying houses, establishing roots, and generating wealth while reducing racial disparities.
The Act aims to address multi-generational inequities in access to homeownership by providing down payment help to first-generation home buyers. It lowers and eventually reduces the racial homeownership gap in the US.
Homeownership is essential because house equity is the largest source of wealth in the United States, with more than $21 trillion in assets, and homeowners are overwhelmingly white.
The homeownership gap between white and Hispanic households is approximately 25% points with a 30% point spread between white and black households.
The Down Payment Toward Equity Act equalizes the playing field for marginalized people and is the most powerful piece of housing legislation.
The program lowers property prices for low-income buyers and encourages long-term homeownership.
2. Criteria to Qualify for the Down Payment Toward Equity Act, 2021
Eligible home buyers should meet all the following criteria:
- Home buyers who may have previously owned a home must not have owned a home or co-signed on a mortgage loan within the previous 36 months.
- The parents/legal guardians of home buyers must have never owned a home during their lifetime. All home buyers who have previously lived in foster care are exempt from this requirement.
- Home buyers’ income must not be more than 120% of the median income of the metropolitan area or 180% if they live in a high-cost area.
- Home buyers should use a mortgage supported by one of the five government mortgage agencies – Freddie Mac, Fannie Mae, VA, FHA, and USDA. Jumbo mortgages, as well as other non-qualifying mortgage loans, are not eligible.
3. How Does the Down Payment Equity Act Work?
The Act is a cash grant for first time home buyers. It is neither a loan nor a tax credit. It is a one-time cash payment offered to qualified buyers at closing that is applied directly to the purchase transaction.
The standard cash award for first-time home buyers is $20,000. An additional $5000 is also available. To qualify, buyers must be socially and economically disadvantaged individuals.
It includes anyone who identifies as Black, Hispanic, Asian American, Native American, or any combination thereof or faced racial or ethnic prejudice or cultural bias because of their membership in a group.
Borrowers who earn no more than 120% of the area median income — or 180% if they live in a high-cost area — are eligible for a $20,000 loan.
Those who are identified as socially disadvantaged because they belong to a group that has been “subjected to racial or ethnic prejudice” may be eligible for an extra $5,000.
4. How to Get the $25,000 Down Payment Grant
When it becomes law, homebuyers will no longer be required to take any action to receive their down payment assistance.
Mortgage lenders will do it automatically. Your loan application contains all the information needed to determine your eligibility.
All buyers must do is purchase a home, after which they shall receive the funds.
Home buyers who use the program must seek counseling from a government-approved counselor before purchasing a home.
5. 5 Year Rule for Home Buyers
Applicants should be aware that they will have to partially forfeit the grant if they sell their home or move their main residence within 5 years.
Real estate wealth is transformative and generational for many homeowners, which is why the down payment Toward Equity Act advocates a long-term approach to homeownership.
According to the draft version of the bill, qualified home buyers who shift their residence or sell their home within five years of purchase must forfeit a portion of their initial grant.
The amount of grant to be forfeited is
- Move or sell within Year 1: 100% of $25,000
- Move or sell within Year 2: 80% of $20,000
- Move or sell within Year 3: 60% of $15,000
- Move or sell within Year 4: 40% of $10,000
- Move or sell within Year 5: 20% of $5,000
The current Congressional effort to assist homeowners differs in several significant ways from President Joe Biden’s proposed first-time homebuyer tax credit, which has been the subject of keen consumer interest.
The most recent draft of a down-payment assistance bill would give $25,000 to first-time homebuyers who are first-generation homebuyers and economically disadvantaged.
The program, presently being discussed in the House, would distribute funding to states based on population, median area housing prices, and racial inequalities in homeownership rates.
The administration and management of the program and distribution of funds would be the responsibility of the state finance departments.
They could, however, delegate that role to community-based nonprofits like community development financial institutions, minority depository banks, housing counseling organizations, and community development credit unions.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
Tim Thomas has investments in real estate.
This post was produced and syndicated by Career Step Up.
Featured image credit: Shutterstock.