Downpayment Toward Equity Act of 2021
One of President Joe Biden’s campaign promises was to help Americans buy quality housing through financial assistance. To make good on this promise, his administration is to introduce the Downpayment Toward Equity Act of 2021.
While the bill has not yet been submitted to the House floor, is merely in discussion, these are the details we have thus far. The Downpayment Toward Equity Act would aim to reduce racial disparity and increase generational wealth by improving renters’ financial access to homeownership. Essentially, this bill would help level the real estate playing field for disadvantaged Americans.
Who is eligible?
Since the bill has not yet passed into law, its eligibility standards are still subject to change. As of this writing, eligible homebuyers need to meet all of the following requirements:
- first-time homebuyer (someone who has not owned a home in the last 3 years);
- first-generation homebuyer (someone whose parents have not owned a home in their lifetimes), with exceptions for:
- first-time, first-generation homebuyers whose parents or legal guardians owned a home, but it was lost due to foreclosure or short sale and the parents or legal guardians do not presently own a home; and
- homebuyers who have ever lived in foster care;
- earn at most 120% of the area median income (AMI) or 180% of the AMI in high-cost areas for either the area where the home being purchased is located or the area where the homebuyer currently resides; and
- use a qualified mortgage eligible for purchase by Freddie Mac or Fannie Mae, insured by either the FHA or USDA.
Editor’s note — need help determining eligibility for your clients? Calculate their AMI here by entering your selected area and multiplying the median household income listed by 1.2 (120%) or 1.8 (180%).
How much money is received?
Firstly, the program will not be a loan or tax credit — it will be a cash grant to eligible homebuyers.
Secondly, the standard cash grant for first-time homebuyers is to be $20,000. An additional $5,000 is granted to first-generation homebuyers who are socially and economically disadvantaged, totaling up to $25,000.
The bill defines socially disadvantaged individuals 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. An economically disadvantaged individual is defined simply by the bill’s income requirements.
Any individual who identifies as Black, Hispanic, Asian American or Native American (or any combination of these ethnicities) will meet the definition of a socially disadvantaged individual. Those who do not identify as such will need to either provide evidence they are socially disadvantaged or settle for the standard $20,000 cash grant.
How is the grant received?
No action is required on the part of the homebuyer; qualifying mortgage lenders will automatically process the grant at closing.
However, all homebuyers receiving assistance under this bill will be required to complete a home purchase counseling program from a HUD-approved counseling agency. States would be allowed to waive this requirement for homebuyers who meet specific HUD-established underwriting criteria.
Does it need to be repaid?
Those who no longer occupy their home less than a year after purchase will be required to repay the entirety of their cash grant. This amount owed decreases by 20% for each year the owner lived in the home. So long as one lives in the purchased property for at least five years, no repayment is required.
This financial assistance may be coupled with financial assistance from other sources such as federal, state and local programs and private and nonprofit sources. It can be used towards the purchase of a home either through assisting with the down payment, closing costs, or payments to reduce the interest rate on a mortgage.
Qualified homebuyers may apply the grant amount toward home-buying costs as they please. This means they can simply allot the entire amount towards a down payment, or half of it towards the down payment and the other half toward closing costs — and so on. Homebuyers may even apply part of their grant toward mortgage discount points for access to a lower rate.
A step in the right direction
The Downpayment Toward Equity Act seeks to narrow the homeownership gap for disadvantaged Americans. Not only does it aim to rectify longstanding racial and economic inequities in the housing space, it serves agents by boosting turnover — and earned agent fees.
Agents, keep an eye on the firsttuesday Journal as we follow this historic piece of legislation. Paired with other pro-housing and job creation policies, the bill stands to galvanize a generation of renters and secure future home sales transactions for years to come.
As someone that would most likely qualify for this program I have to say it is misguided. Redistributing income is never the right idea because it takes money out of one families pocket and puts it in the other. Even if someone rationalizes redistribution of taxes as evening out the effects of inequality, they at least have to recognize the economics of introducing more buyers into a already oversaturated market due to heavy demand with shallow supply. This will only put housing even further out of the hands of the least wealthy and/or least educated regardless of their race. I lost my home when I was younger and watched many others that qualified for mortgage opportunities under the guise of helping the underprivileged lose their homes during the Great Recession because they had virtually no equity or financial education. Any government assistance should be spent on educating individuals on how to manage their money so when they do buy a home, they can keep it. Finally, we just had the biggest amount of unemployment fraud in history because the government is not able to effectively weed fraud out. Imagine trying to “validate” if a person “identifies” as an ethnicity or not.