By Rachel Puryear
As always, coming up with a downpayment is a major sticking point for many in owning a home. Proposed federal legislation – if passed – could give some first-time buyers a downpayment boost.
The Downpayment Toward Equity Act of 2021 would offer at least $20,000.00 of downpayment grant assistance to qualifying buyers. Those qualifying buyers who also belong to groups “subjected to racial or ethnic prejudice” could receive an additional $5,000.00 (for a total of $25,000.00).
To qualify, a buyer must:
- Not have owned a home in the previous three years.
- Not make more than 120% of the median income in their area, or more than 180% if they live in a high-cost area.
- Neither of their parents owned a home – EXCEPT where the parents lost their home in a foreclosure or short sale, or the buyer has ever been in foster care.
The grant funds could be used at closing towards downpayment on residential property (1-4 units, can include a condo or townhouse or manufactured home).
This could bring a lot of potential home buyers closer. It still does not overcome housing supply shortage, which continues to drive up housing prices and create a fiercely competitive housing market. In pricy areas like the Bay Area, even $25,000.00 will still leave plenty of onus on buyers to come up with the rest. But it’s a start.
Also notable is the Biden administrations’s proposal of a (up to) $15,000.00 homebuyer tax credit – now a bill currently before Congress – known as the “First-Time Homebuyer Act”. If passed, this legislation would provide first-time homebuyers (defined as not having owned or purchased a home within the previous three years) with a tax credit of up to 10% of the purchase price, capped at $15,000.00. Eligible participants would make no more the 160% of the median income in their area, and purchase a home for no more than 110% of the area’s median purchase price, and use the home as a primary residence for at least four years. Again, given that just about anything in the Bay Area costs a lot more than the $150,000.00 it would take to reach the tax credit’s cap, the effect of offsetting some of the purchase price through a tax credit could be fairly minimal here. But, perhaps every little bit helps. In any event, this bill is something to watch in the coming weeks.
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