NEW: Biden's $25,000 First-Time Buyer Program

Certified Mortgage Advisor
NMLS 1701021
Published 
April 20, 2021

$15,000 to $25,000 payment grant!

I can't believe it's actually here. So it was a $15,000 tax credit by the Biden Administration is now a $25,000 down payment grant.

When can you use this grant?

So what that means basically is that this bad boy is available at closing instead of a tax credit when you file taxes after you purchase your home. So the money is available upfront.

Down Payment Toward Equity Act of 2021

Basically, what happened, long story short is a draft version of legislation called the Down Payment Toward Equity Act of 2021 was introduced. So now it's becoming a talking point where it still has to be deliberated and decided on some of the details. So here's where it gets a little bit dicey is a lot of things that you heard about this program have completely changed. Like it's entirely different than what we thought it was going to be.

Basic Requirements

So here are some basic requirements that we know so far, and this still has to be hashed out a little bit more through Congress.

For first time home buyers

So it's only for first-time buyers. So the legal definition of a first-time buyer is someone who hasn't had title to a home in the past three years.

First generation home buyer, what's the definition?

Here's the kicker has to be a first-generation homebuyer which means neither parent may have owned a home in the past. This doesn't include if the parents have had a foreclosure or short sale in the past but has to be first-generation homebuyer. So this is huge because initially, we didn't think that was going to be a thing. And so it completely reduced a large majority of who was going to be able to qualify for what we thought was a tax credit and is now a down payment grant.

Max income requirement

Also, the max income that you can have is 120% of the Area Median Income. Here is where it will show you the Area Median Income, and you can calculate 120%. If you need to, but the max, so if you're under 120% of area median income, you can get a maximum of $20,000.

For groups that have been subjected to racial and ethnic prejudice

Then what they also said is any groups that have been subjected to racial or ethnic prejudice could receive an additional $5,000 towards down payment or closing costs, whatever they want to use that money for.

We need for this bill to pass

So this still has to pass the house and the Senate, and so this is more of a conversation starter than anything else. It's not all ready to go, but this is as much structure as we've seen so far because in the beginning, this tax credit was just an administration talking point and now it actually has some wording to it. It has somebody it's filling out a little bit. And so we get to see the direction of where the administration wants to take this program. Once it gets fleshed out and then it gets passed through Congress if that happens.

The Pros

So some pros to this program that we're seeing so far are number one, like the huge mission of this down payment grant right now is to close the homeownership gap where we initially were thinking it was mainly to help home buyers entering into the market, overcome the down payment obstacle. It's now really the main focus is to help close the ownership gap, the equity gap within homeownership, and then also to help accelerate multi-generational homeownership for those who have been economically disadvantaged or socially disadvantaged currently.

So this is where a lot of the wealth-building portion of real estate comes from is multi-generational homeownership. And a lot of people have been missing out on that for generations. So this program is attempting to close the gap there.

The Cons

So some negatives here are that it could raise home prices if we see more people coming into the market, it could increase the competition with already low demand that we're having home prices would only rise. Then another negative to this is income is going to be means-tested. And it's going to be difficult to say how many people will actually qualify for this program, especially for the full 25,000.

It could be a small number of people who actually qualify where initially the tax credit we were expecting, there should be a pretty large portion of people qualifying, it looks like this program is going to narrow that down quite a bit. So it'll be interesting to see how many people can qualify, but for those who do qualify for the program, if it does actually get passed through Congress and signed off would be a really helpful program for a large number of people in there.

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