How the Downpayment Assistance Bill Could Help Eligible First-Time Homebuyers

First-time homebuyers trying to break into a hot real estate market should pay close attention to the actions of the House Financial Services Committee.

The House of Representatives panel is considering President Joe Biden’s proposed first-time homebuyer tax credit that could provide up to $25,000 for eligible first-time homebuyers. Originally, the legislation, known as the Downpayment Toward Equity Act of 2021, featured a maximum of $15,000 per buyer toward their down payment on a home.

Last week, the House Financial Services Committee released the latest draft of the proposal. In this draft, the proposal comes in the form of a grant, rather than being structured as a tax break or refund.

In an analysis last month, Zillow determined that a $15,000 tax credit could cover an entire down payment in 40 of the nation’s 50 largest metro areas, including Dallas-Fort Worth.

Zillow’s research showed that 26.5 percent of D/FW renters could afford the median mortgage payment for the area but only 18.2 percent could afford a 3.5 percent downpayment. In D-FW, a typical home would require a $10,080 downpayment with a monthly mortgage payment of $1,890.

“For years, aspiring minority and millennial homebuyers have struggled unsuccessfully to save enough for a down payment. Sky-high student loan payments along with ever-increasing childcare costs and other urgent needs have made the goal of buying that first home elusive for too many Americans. Add to that the financial hardships brought upon us by the COVID-19 pandemic, which has hit minorities and lower-wage workers particularly hard. These demographics, especially, would immediately benefit from the Biden proposal.”

Bill Jordan, MetroTex Association of Realtors

Moody’s Analytics estimates that renter households save 2.4 percent of their income each year. At that rate, it would take the typical renter 14 years to save $15,000, and potentially longer in some areas. An immediate $15,000 credit could push these renters years ahead toward homebuying, Zillow determined.

Congress will face debates over the amount of acceptable funding for fiscal years 2021-2030. Per the draft, assistance limits are up to $20,000 per homebuyer — or up to $25,000 if the homebuyer qualifies as socially and economically disadvantaged.

Funds must only be used to help homebuyers purchase a home. Assistance also can go toward a down payment or the closing costs, or to reduce the interest rate on a mortgage. Homebuyers receiving assistance from federal, state, local, private, or nonprofit sources can still be able to receive a grant.

Grantees must meet income requirements and qualify as first-generation homebuyers, meaning they are individuals whose parents have:

• Never owned their own home during the homebuyer’s lifetime.
• Previously owned a home during the homebuyer’s lifetime but lost the home to foreclosure, short sale, or deed-in-lieu, and no longer own a home.
• Homebuyers who lived in foster care can also qualify as a first-generation homebuyer.

To receive the grant, homebuyers must complete a home purchase counseling program through a Housing and Urban Development-approved agency. States might be able to waive this condition for homebuyers who meet specific HUD-approved underwriting criteria.

While it’s being considered, the housing market is faced with rising home prices and inventory shortages, which could further impact the state of the housing industry and drive up prices even more.

As written, the proposal is a starting point for discussions. To pass the grant program into law, a bill will have to make its way through both houses of Congress, which could mean further revisions.

What’s next? Keep an eye on the hearings here.