Who Qualifies for Biden's $25,000 First-Time Homebuyer Grant?
Have you heard about the two major first-time homebuyer programs currently working their way through congress?
The $15,000 tax credit is known as the "First-Time Homebuyer Act of 2021."
What some are calling the "Biden $25,000 First-Time Homebuyer Grant" is formerly known as "The Downpayment Toward Equity Act of 2021."
With that in mind, let’s unpack details of what we know so far together!
There are a couple of current resources that shed light on the possible down payment toward equity act of 2021 and how it might work.
The 1st is the 3-page summary version of the downpayment toward equity act of 2021 from the National Council of State Housing Agencies aka NCSHA.
To keep it simple, we'll use the summary version for this post. If you prefer to watch me explain details, click below. Or, continue reading below the video.
The intended purpose of the downpayment toward equity act of 2021 is to provide a grant program for states to use for down payment assistance to help “first-generation home buyers.” As we move forward, we’ll go a bit deeper into what these terms mean and some of the reasons behind them.
Currently, there is no specific amount of funding mentioned since this is still a discussion draft and not approved yet. Now it’s pretty interesting to note that this program if it passes as it’s written in the discussion draft, could be available from Fiscal Year’s 2021-2030.
If enacted, this program on the federal level would be administered under the jurisdiction of the Department of Housing & Urban Development, which is commonly referred to as HUD. When the funding is set for this program, the HUD must use at least 5% of the funds to support housing counseling activities. We’ll talk about what housing counseling activities mean in a minute.
On the state level, any state receiving grants under this act must administer the funds through its state housing financing agency, aka HFA, or another state housing agency the treasury considers appropriate.
For any state to be eligible to receive funds under this act, the state’s HFA or another state housing agency must have adopted a plan for affirmatively further fair housing that the treasury deems compliant with HUD’s 2015 affirmatively further fair housing rule.
By the way, HUD’s 2015 affirmatively further fair housing rule is 101 pages long and is available from the Federal Register if you’d like to check it out.
We’ll circle back on this and why it’s important in a moment.
The funds for this program will be appropriated each fiscal year and allocated by the department of housing and urban development or HUD for short. Specifically, the HUD will administer funds based upon a grant formula that considers each state’s population, median area home prices, and racial disparities in homeownership.
Depending on your point of view, this may or may not be a sticking point for you. All the same, I ask you to be respectful of each other and one another’s views in the comments. Thank you.
The HUD would also reallocate any used funding at the end of each fiscal year to states that have demonstrated the capacity to use the money and that the Treasury determines are meeting the program’s goals.
For eligible home buyers, the funds under this possible bill can be used as down payment assistance, closing cost assistance, or even payments to reduce your mortgage interest rate.
On top of that, in the current form of the discussion draft, a home buyer could stack this program with any other assistance programs they might be receiving from other federal, state, and local programs and private and nonprofit sources.
So you might be wondering who can qualify and what that looks like? From the summary of the discussion draft, we can see an eligible recipient must be a first-time homebuyer who meets the income requirements and qualifies as what the act terms a “first-generation” home buyer.
For reference, a "first-time homebuyer" is defined as anyone who has not owned a home in the prior three years.
For the income limits, a home buyer must have an annual income at or below 120% of the area median income or AMI for short. If you’re wondering what your AMI is where you live, you can use the AMI lookup tool courtesy of Fannie Mae.
To bring the numbers to life, let’s do a quick example for Las Vegas, Nevada, where I live and work. The Las Vegas area median income is $70,800.
So, if a buyer can have up to 120% of the area median income, we can quickly do the math by multiplying $70,800 * 1.2 = $84,960 as the current max income for this program in Las Vegas, Nevada area.
To calculate the max area median income where you live, simply multiply the area median income by 1.2, and there you go. It’s that easy.
If you live in high-cost areas, like San Francisco or New York City, a home buyer can have up to 180% of the area's median income. So you’d multiply your AMI by 1.8 to get the maximum income limit for this program.
Click here to find out if you live in a high-cost area.
So that brings up the next qualifying point, which is being a “first-generation home buyer.” But what is that exactly?
For the purpose of this act, a "first-generation home buyer" is defined as any individual whose parents or guardians have never owned their own home during the home buyer’s lifetime or previously owned a home during the home buyer’s lifetime but lost the house to foreclosure, short sale, or deed-in-lieu of foreclosure and do not currently own a home.
The caveat here is that any person that lived in foster care also qualifies as a first-generation home buyer.
Now, if you’re wondering about the money and how much you could get, we’re getting that now! Qualified homebuyers may receive up to $20,000 in assistance or $25,000 in assistance if the home buyer qualifies as a “socially and economically disadvantaged individual.”
For the purpose of this act, a socially disadvantaged individual is defined as those who have been subject to racial or ethnic prejudice or cultural bias because of the identity as a member of a group without regard to their individual qualities.
And an economically disadvantaged individual is one who meets the bill’s income requirements we went over a few moments ago.
This bill has an automatic presumption that if anyone identifies as Black, Hispanic, Asian American, Native American, or any combination thereof they will be considered to meet this definition.
For any person that does not identify as such, they will have to prove by a preponderance of evidence they are socially disadvantaged.
Depending on someone’s point of view, the definition of a socially and economically disadvantaged individual may or may not seem offensive. But here’s the deal there are excellent reasons for why that’s the case.
Unfortunately, in the history of the United States, mortgage and housing discrimination through redlining, racial segregation enforced by Jim Crow laws were legal until the Fair Housing Act of 1968 was passed.
If you really want to know why a housing program like this is needed to help people, check out the PBS Independent Lens series about the impacts of redlining, Wikipedia’s Housing Discrimination the United States, and a link to a podcast called Stuff You Should Know.
So what loan types will be available for this program? An eligible home buyer will be able to use common home loan types such as conventional, VA, FHA, and USDA loans that meet the definition of a qualified mortgage.
As part of this program, home buyers are required to complete a home purchase counseling program provided through a HUD-approved housing counseling agency.
It is essential to know that repayment terms apply if a home buyer who received assistance under this act occupies their home for less than a year after purchase.
The way this works is if a buyer sells the house in less than a year after purchase, the full amount they received will need to be paid back.
For every year thereafter, 20% of the amount received will be forgiven over a 5 year period. After living in the home for 5 years, the amount received from this act is entirely forgiven. If for some reason, a home buyer sold their home and the realized gain on the sale is less than the amount they are required to pay, the penalty fee would be waived.
So you might be wondering how does a bill bet approved? The US House of Representatives will vote on the bill and if the majority of the votes are in favor, then the bill will go to the US Senate to be debated and voted upon. If the Senate majority votes favorably and passes the bill then it will move to President’s desk to be signed into law.
Hopefully, this post and the video above have given you a keen insight into what's shaping up in the downpayment toward equity act of 2021. If you're ready to take your home buying savvy to the next level, download the free home buying process infographic below.
Thank you so much for reading this post! I'm sending you positive vibes everything goes your way! - Andrew Finney
Disclaimer: At the time of writing, Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group (KRG) in Las Vegas, NV. Andrew's videos and blog posts are his own and do not necessarily represent the views and/ or opinions of KRG.