By Michele Lerner, Washington Post
The possibility of a first-time home buyer tax credit of up to $15,000 was part of President Biden’s campaign proposal to boost the participation of first-time buyers in the housing market. But the first indication of a new program for first-time buyers is the Down Payment Toward Equity Act of 2021, a draft of legislation published and discussed at a hearing of the House Financial Services Committee on April 14.
The proposed legislation, which differs in several ways from the initial concept of a first-time buyer tax credit, is both narrower and broader than the earlier plans. While the amount that could be available for first-time buyers is as high as $25,000 in this proposal, the program is directed at creating equity in the housing market. To do that, eligible home buyers must be the first generation in their family to own a home.
The National Council of State Housing Agencies (NCSHA) explains the key elements of this plan.
- Borrowers must be first-time home buyers, defined by the federal government as those who have not owned a home in the previous three years.
- Borrowers must meet income limits of 120 percent or less of area-median income of the location where the buyers live or where the home is being purchased. In high-cost housing markets, the income limit is increased to 180 percent of area-median income. In the D.C. region, median family income is $123,100 in 2021.
- Borrowers must be a first-generation home buyer, defined as any person whose parents or guardian never owned a home during the home buyer’s lifetime or lost the home to a foreclosure or short sale and do not own a home now. Anyone who lived in foster care also qualifies as a first-generation home buyer.
- Home buyer assistance is available up to $20,000 for eligible borrowers or up to $25,000 if the home buyer qualifies as a socially and economically disadvantaged individual. The economic disadvantage measure is met by income limits on the program. According to the proposed bill, socially disadvantaged individuals are defined as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” NCSHA’s summary says, “Any individual identifying as Black, Hispanic, Asian American, Native American, or any combination thereof will be presumed to meet this definition. Any individual who does not identify as such will have to prove by a preponderance of evidence that they are socially disadvantaged.”
Buyers can fund their purchase with any government-insured FHA or USDA loan or a loan that can be purchased by Freddie Mac or Fannie Mae.
Home buyer counseling is required to participate in the program.
The down payment assistance is a grant that does not need to be repaid if the buyers keep their home for five years. It must be repaid in full if the buyers stop occupying their home less than a year after they buy it. The amount that must be repaid decreases 20 percent each year they live in the home and is completely forgiven after five years in residence.
If the program passes into legislation, it would be administered by state housing finance agencies under the direction of the Department of Housing and Urban Development.