All right, let's go ahead and walk through in-depth the Biden Administration's proposal for this down payment grant of $25,000. So we're going to walk through this document. The title is super short, but it should clear up a lot of questions that you may have about this program.
So this is called the Down Payment Toward Equity Act of 2021, and it's important to remember that what I will discuss is the summary of the discussion draft. Basically what has happened is this is going to be deliberated on, can be discussed, then turned into a final bill that will then have to go through Congress and then get signed off to be able to actually be real in the world. So this is just a draft. It's important to keep that in mind.
So when people ask, like, how do I apply? When do I do this? How do we get it right now? It's not available right now. This is just a conversation point inside of Congress.
So according to www.ncsha.org, "A grant program for states to be used for down payment assistance, to first-generation home buyers". As far as funding goes, it's interesting that they have no specified amounts. So Congress has authorized to "appropriate what funding is necessary for fiscal years, 2021 through 2030". So we can see the time horizon here. And basically what they're saying is they're going to take whatever funding is needed to go through these years.
So it sounds like this is going to be adjustable. It's unclear if there's going to be a cap set on the amount of funding available for this as well.
Also, they say that this is going to be "administered under the jurisdiction of HUD". So the Department of Housing and Urban Development said that of the total appropriated each year, HUD must use at least 5% to support housing counseling activities.
Also, they said that "Any state receiving grants under this act must administer the funds through its state housing finance agency". So this is interesting because it's through. The local states HFA or Housing Finance Agency. So whenever we introduce a third-party like this through the home buying process, what we can do is process can get slowed down a little bit more so it's important to keep that in mind that may be getting grant approval may make it a slower loan process as you go through it.
So, from the website, "Funds appropriated each fiscal year will be allocated by HUD based on a formula that takes into account each state's population, median area, home price, and racial disparities in homeownership. HUD will reallocate any unused funding at the end of each fiscal year to states that demonstrate the capacity to use the money and that treasury determines are meeting the programs, goals."
It was also stated that "The use of funds and admin funds may be used solely to assist eligible homeowners to purchase homes either through down payment assistance, closing cost, assistance, or payments to reduce the interest rate on a mortgage. Assistance may be provided to home buyers, receiving assistance from other sources, including another federal state, and local programs and private and nonprofit sources."
So it's really interesting about this as I've had some people ask what can I couple other down payment assistance programs with it? And according to this yes. We could take some other down payment assistance programs that we're using and add them on top of this bill as well.
Of course with the caveat that I like it passes and goes through with all these same details, which we'll see if that ends up happening, but you can stack those programs on top of each other, as long as the other DPA doesn't have an issue it.
Then grantees, which in this case would be each state's housing finance agency, may use no more than 5% of the grant amount for administrative and training costs. So basically the government would issue them the money and then they would have to use 95% of that to actually be able to give out only 5% can be used for admin of the program that the issue.
So now let's get back into some of the like actual meat and bones of this thing, which is who is eligible for this program. And this changes significantly from what we initially expected from the $15,000 tax credit for first-time buyers. As stated, "Funds under this act can be provided to first-time buyers who meet income requirements and qualify as with act terms, first-generation home buyers".
Now, as defined by the website, "First-time home buyers or those who have not owned a home in the prior three years. So that means you haven't been on title to a home in the past three years. As long as that's the case, you're technically a first-time buyer under this act".
Now regarding income, "Homebuyers must have an income at, or below 120% of Area Median Income or AMI". Here's the link to find AMI or Area Median Income. So basically you just take a hundred percent area median income number and multiply it times at 1.2, that's 120% of the area median income.
It was also stated on the website that, "for either the area where the home has been purchased is located or the area where a homebuyer is a place of residence is located for home buyers, purchasing homes in high-cost areas. The income limit is increased to 180% of area median income".
So to do this, you're gonna have to use a couple of different tools, so here's the link for HUD High-Cost Area. Then what you'll do is you'll use the other tool to find 180%, so just take the area median income times 1.8, and that gives you 180%. So that's the income limit.
What narrows this act down quite a bit more is the "first-generation eligibility requirement". This is the ax definition of a first-generation homebuyer per NCSHA.org is an individual whose parents or guardians never owned a home never owned their home during the home buyer's lifetime.
That's an interesting little detail here, buyers' lifetime. So they could have owned a home previous late to that, but not during the home buyers' life. And then also, "previously owned a home during the homebuyers lifetime, but lost the home due to foreclosure short sale or deed in lieu of foreclosure, and don't currently own a home".
What I'm assuming that they're trying to put in here is recognizing what happened in 2008, when we saw the housing crash because of a lot of predatory loans, basically saying that those loans, that type of homeownership wouldn't count because it was seen as predatory.
Then also an important detail here is that an individual who lived in foster care also qualifies as a first-generation home buyer. So they're not going to go into trying to track down parents and their homeownership status.
Now, a big question is that people have had here is like, how are they going to know if their parents have ever owned a home. So it's unclear exactly how they're going to do this. There's tons of data and keep in mind like when you buy a home, everything's put on public record. So it's not difficult for the government to find out if your parents have owned a home. There's a lot of data out there. So it's difficult to say whether they're going to require you to bring in proof of that, or if they're going to look it up, it's really difficult to see.
So then we would go to assistance limits. As stated, "homebuyers may receive up to 20,000 in assistance or $25,000 in assistance of the home buyer qualifies a socially and economically disadvantaged individual".
So when they go on to explain here is what classifies as socially and economically disadvantaged is, "Any individual identifying as black, Hispanic, Asian American Native American or any combination thereof will be presumed to meet this definition. And any individual who does not identify as such, we'll have to prove by a preponderance of the evidence that they are socially disadvantaged".
As stated, "The program funds can be used to assist in the purchase of any home bought with a mortgage that is eligible for purchase by Fannie Mae or Freddie Mac. So these are conventional loans.
Also, loans that are insured by either FHA or USDA, or meet the definition of a qualified mortgage. If you're curious about that, you can just Google qualified mortgage. It's a couple of details in there that has recently changed with QM loans and non-QM loans. But for the most part, people are going to be getting qualified mortgages.
"There's also a counseling requirement. So home buyers are receiving assistance under this act must complete a home purchase counseling program provided through HUD-approved housing counseling agency". So this is where that 5% of funds can be help allocated towards the admin and training of this program as well.
Also, in accordance, "States would be allowed to waive this requirement for homebuyers who meet specific underwriting criteria established by HUD".
One last detail that they provided is, "Any individual who receives a commission for assistance under the program, but whose mortgage application is denied, shall be referred to a HUD-approved counseling agency for home purchase counseling".
So I saw a lot of people in the comments on my previous video, who are saying that it doesn't make sense to give money to people who can't qualify for loans. And it's important to remember that somebody still has to qualify for a loan to receive this grant. The grant is not about, do you have the money or not? And the same thing with any down payment assistance program, it's not, "oh, you can't afford a home. So we're going to just give you this big debt obligation that we think you can't pay back".
The expectation is that absolutely somebody can still pay back this loan and be perfectly okay with having a mortgage. It's just assistance with the down payment, closing costs, or paying down the interest rate.
Then finally is the repayment of assistance. It was also stated that "Home buyers receiving assistance on those acts would be required to pay back all assistance they received. If they stop occupying their home less than a year after purchase. The amount the home buyer would be required to pay back would decrease by 20% for each year they live in the home and there would be no penalty after five years. The penalty would be waived, should the homebuyer sell the home and realize a gain on the sale, less than the amount they were acquired to repay".
So basically, if you sell the home, they're not going to they're not gonna chase down a debt of sorts is basically what they're saying here is you need to pay it back. If you have the money, if you sell it and you have to pay back a certain amount and you have enough to pay it back, you have to pay back. But if you don't, they're not going to go chase you down for it if you didn't make any of that money up to pay it back.
A couple of questions that people have had in here that I saw in comments that are not addressed is, does this work retroactively? If I purchase a home now and then this becomes a thing, will it work right now? It's unclear. My assumption is no, that it won't work that way. If it was a tax credit, it would work that way. Cause it only happens when you file taxes. I'm just saying.
Seeing that being a thing, however, it could change, right? Remember this is still a draft. This is still something that's living and breathing and moving and changing. And so there's no certainty about what's happening here.
Also, should I wait for this? Should I go ahead and buy it? I personally don't think that anybody should wait for a program like this because again, it's still a draft. It's not even a fully prepared bill, so it has to become a full bill. We don't even know if these details are going to change. At all, it might be completely different, right? By the time it actually gets pushed through, then it has to go to the house and then to the Senate, and then it has to get signed and actually turned into a real thing.
So I personally wouldn't advise, waiting for it. If you have the means to purchase right now, I wouldn't want you to miss out on something in anticipation of this. Because we don't even know if it's going to become a thing. Even if it becomes a full bill that gets introduced, it could get shot down in Congress.
And we just, for me, I don't want to count my future or somebody else's future on something that may or may not exist, especially in the early beginning stages. If this was actually fully introduced and maybe already passed half of Congress. Maybe it might be time to wait at that point. At this stage, it just doesn't look like there's enough certainty to say waiting is a good option.
Then finally going into the why of this. And this is where it can get a little bit heated depending on your viewpoint of this draft and what's been introduced and what it's attempting to address as well.
What I would suggest is looking up the podcast Stuff You Should Know, they have a really great episode on how housing discrimination works. And I think that if you could take maybe 40 minutes to listen to that while you're driving in the car might help give you a really good perspective on what is the point of this bill?
The point of this bill is a timeline that is much longer than just your parents to you. The timeline of this bill is actually looking at before your parents and after you, and listening to that podcast might give you a little bit more insight into why this bill is even being introduced, and why it might be an option that could help with the home ownership wealth gap.