The industry has been eagerly awaiting further details about President Joe Biden’s proposed first-time homebuyer tax credit—which originally featured a max of $15,000 per buyer toward their down payment on a home.
The House Financial Services Committee recently released the latest draft of the proposal, called the “Downpayment Toward Equity Act of 2021.” The first note of significance? The proposal comes in the form of a grant, rather than being structured as a tax break or refund.
Here’s what you need to know about the latest proposal:
Funding Source and Distribution Formula
There’s not currently an amount set in terms of funding. Congress will have to debate about the amount of funding they find acceptable for fiscal years 2021 – 2030. However, assistance limits are currently up to $20,000 per homebuyer (or up to $25,000 if the homebuyer qualifies as a “socially and economically disadvantaged individual”).
The Department of Housing and Urban Development (HUD) will be allocating the funds. Of the total funds provided each year, HUD is required to use at least 5% to support housing counseling activities.
Funding will take into account each state’s population, median area home prices and racial disparities in homeownership. Any unused funds will be reallocated by HUD at the end of each year to states that show they are in need—but only if they meet the Treasury’s program goals.
How Can the Grant Can Be Used?
According to the proposal, funds must only be used to help homebuyers purchase a home. Assistance can go toward a down payment or the closing costs, or to reduce the interest rate on a mortgage.
Funds can be used with the following mortgages:
- One that is eligible for purchase by Fannie Mae or Freddie Mac
- One insured by the FHA or USDA
- One that meets the definition of a qualified mortgage
Who Is Eligible?
While the grant is for first-time homebuyers, those who have not owned a home in three years may be eligible.
Even homebuyers receiving assistance from federal, state, local, private or nonprofit sources may still be able to receive a grant.
Grantees must meet income requirements and qualify as “first-generation” homebuyers. This means they are individuals whose parents have:
- Never owned their own home during the homebuyer’s lifetime.
- Previously owned a home during the homebuyer’s lifetime but lost the home to foreclosure, short sale or deed-in-lieu, and no longer own a home.
Homebuyers who lived in foster care may also qualify as a first-generation homebuyer.
Additional Rules
In order to receive the grant, homebuyers must complete a home purchase counseling program through a HUD-approved agency. States may be able to waive this condition for homebuyers who meet specific HUD-approved underwriting criteria.
Homebuyers who stop occupying their home less than a year after they purchased will need to repay the entire grant. This amount decreases by 20% for each year they live in the home, with no penalty occurring after five years. The penalty would also be waived for home sellers who realize a gain on their sale that is less than the amount they owe.
This draft is simply a kicking-off point to begin discussions. To pass the grant program into law, a bill will have to make its way through both houses of Congress, which could mean further revisions.
Zillow released a report in March finding that a $15,000 tax credit could cover the entire down payment for homes in 40 of the 50 largest U.S. metros. The company found that with a 3.5% down payment on a 30-year mortgage with a 3% interest rate, about 9.3 million renter households in the U.S. (27.4%) would spend less than a third of their income on the monthly payment for the median home sold in their metro in 2022.
This is a developing story. Stay tuned to RISMedia for updates.
Liz Dominguez is RISMedia’s senior online editor. Email her your real estate news ideas at lizd@rismedia.com.
Will all FHA lenders be offering this grant?
Hi, Steve. At this time, it does look like FHA mortgages will be eligible. Stay tuned for more updates!
The first generational element is a bit confusing…is it a first time homebuyer program or a first generational buyer program?….there are many 1st time home buyers out there that would not be able to use the program if their parents owned a home under the “generational” qualification. I bought my first home using a down payment assistance program called the Nevada 1st Time Home Buyer Program that had plenty of hoopes to jump through, but if it had a generational clause like this, I would not have been able to buy my first home for quite a bit longer. Clarification is needed on that element, or a different “headline” name.
Thanks for reading, Rob! It’s being touted as a “first-time homebuyer” program, but it does look like they will be restricting based on first generational purchasers. However, it’s too soon to tell, and there does seem to be exemptions to the rule. Stay tuned for more developments!
Will a first time buyer who closed their escrow in February 2021 qualify!
Hi, Gregg. Thanks for reading! Unfortunately, this grant can only be used for individuals who have not yet purchased a home. It doesn’t appear that the grant can be applied retroactively.
Agree about the “First Generation”. My Clients parents No Longer own a home, they rent, BUT, they did not loose it they sold it. So, I believe that means she is not eligible for this grant?
So if someone’s parents struggled to save up and buy a home, their child doesn’t qualify. Yet if someone’s parents walked away from a home and it was foreclosed on, their child does qualify. This bill needs a lot of work.
First time buyers are lined up at open houses now. What they should do is give $15,000 to local municipalities for every affordable building site they create.
Who would that be “first time generational” anybody run the numbers to see how many that is.
I am a first time buyer sign a contract but have not closed on the home will I be qualified for the first time buyer program.
What about new FHA buyers who just bought a home ? Does this apply to them as well? Like some type of credits or reimbursement?
the generational thing is absolutely crazy, what does that prove, we have a ist time buyer, just out of school ,getting decent job, maybe hasn’t been close or seen his parents in several years & now restricted out of this great program
When can I apply
When will this be available?
This is GREAT!!! WE need this and so.many would be able to buy.
I live in Washington state. I would be a first time home buyer. I’m on SSDI. I receive survivors benefits. I want to get into my own house very soon. I have lived with parents long enough. Can I get a grant to get into my own house?? The average house price is roughly $250,000,for a house that is ok. But more than likely needs some TLC. Can you please give me direction?
How does credit score play in this grant? That was not mentioned.
How to apply for this grant? Are there certain banks that are accepting this grant or grants and can you please provide a website to apply?
How do you apply for the loan? Do you have to have certain credit requirements?
Where do I apply for these grants or programs I am a first-time buyer and I’m very interested in getting into any program so I can go to the next level
If one person in a couple both applying is a first generational homebuyer but the other is not, does that disqualify them?
How much income, would one have to make annually, to be approved, for this grant
This exact 1st time homebuyer program is available in Ma. But only for residents of city of Boston. There are other “gateway” cities that qualify. These gateway cities are in the most undesirable cities. I find this to be unfair. Apparently, the town or city you live in must apply or reach out to this program..in order for low income residents to have a chance to apply. Most suburban towns, will not do this..because they want high tax revenue projects under construction..to collect the highest taxes for their individual towns. This is unfair. Low income 1st time homebuyers are not a priority.
How do I apply for the grant
Wouldn’t this cause a even higher amount of homebuyer demand then what we already have, causing prices to soar due to the lack of supply? How is this beneficial when the real problem is house supply?
Hello! What if you’re currently getting a loan through USDA DIRECT HOME LOAN PROGRAM and have been approved for a loan? The purchase has not been funded as I am purchasing a new construction and JUST (as of last week) went under contract with a builder. Would this situation allow me to be eligible?
Thanks!
I am In the process of buying in Connecticut. I long would it take to get approved? Closing is estimated for the end of May. I was told that their is not grants out there for me.