For qualified homebuyers, the Downpayment Toward Equity Act of 2021 could offer enormous help in the form of a grant for as much as $25,000 for their home purchase. This program would be for first-time, first-generation homebuyers (meaning someone who has not owned real estate in the previous three years and whose parents have never owned real estate), and is designed as a way to help individuals escape the “renter’s trap.” Because rent can take up a huge portion of a person’s income each month, they may struggle to save up for the large down payment that is often required for purchasing a house. Owning a home allows you to earn equity, and because the money from this act would be paid at closing and isn’t a tax credit, it offers a huge step for those looking to buy a home for the very first time.
As Much as $25,000 Available
Through the Downpayment Toward Equity Act of 2021, as much as $20,000 would be available for first-generation, first-time homebuyers, plus an additional $5,000 for homebuyers who are considered “socially and economically disadvantaged.” These funds could be used to help pay for the down payment and closing costs, and could also “buy down” the mortgage rate, resulting in a cheaper monthly payment. Because this is a grant, this money would not need to be repaid on the condition that the homebuyer lives in the home for a minimum of five years. If a homebuyer lives in the home for less than the required time, they may be required to pay back all or a portion of the grant. The current schedule proposes full repayment if they move out in less than a year, 80% repayment if they leave in the second year, 60% if they leave in year 3, 40% if leave in year 4, and 20% if they move out in year 5. After year 5, however, they could move out and not be required to pay back the grant. It should be noted that there are some exceptions to repayment, such as unexpected hardships that necessitate a move, but individuals applying for this grant should plan to stay in the home for five years in order to avoid repayment.
For certain buyers, this grant would pay for their entire upfront cost. For example, if a borrower was buying a house for $350,000 and opted for a mortgage with a low down payment, such as an FHA loan (with a 3.5% down payment), then their down payment would be $12,250, their estimated closing costs (2% of the loan) would be $7,000, and their buydown (1% of the loan) would be $3,500. This brings their total costs to $22,750 – less than the maximum grant amount! That means that certain qualified homebuyers could move in to their new home with no money paid out of their own funds. For those struggling to save for a down payment, this would be an extraordinary help!
In addition to having to be a first-time, first-generation homebuyer, individuals have to have “average or lower income,” which is considered income at or below 120% of the area median income. This can be based either on the buyer’s current place of residence or the area of the purchase property. In high-cost areas, individuals who earn 180% of the area median income may be eligible. All applicants will be required to attend HUD-approved home purchase counseling. For a list of homebuyer education and counseling courses, click here!
To be able to qualify for the additional $5,000 for those labeled as “socially and economically disadvantaged,” an applicant must identify as Native American, Asian, Hispanic, or Black. Anyone who doesn’t identify as the above can submit evidence that they are disadvantaged to be reviewed for consideration. However, as this act continues to develop, it’s likely that additional qualifications will be clarified. It’s important to note that this qualification is only for the additional $5,000 in assistance, and an applicant does not need to be considered disadvantaged in order to qualify for the $20,000 in assistance.
The property being purchased using this down payment assistance must be eligible as well. Houses being purchased must be a 1-4 unit residential property and must be the homebuyer’s planned primary residence.
Currently, the act says that this down payment assistance can be used for many popular loan programs as well as other down payment assistance programs! These means that those looking to utilize this act if it’s passed may find other down payment assistance opportunities as well.
This Act Could Help Over 3 Million Homebuyers
Maxine Walters, the House Financial Services Committee Chairwoman, is driving the act, which is a part of the “American Rescue Plan,” the $2 trillion infrastructure package being pushed by President Biden. $100 billion has been proposed for the Downpayment Toward Equity Act of 2021, with $75 billion of that amount being used for grant funds directly. That means that this act could help at least 3 million homebuyers, and possibly more. Because not every first-time homebuyer meets all of the proposed qualifications, funds from this program could be available for many years if the bill is passed.
The Downpayment Toward Equity Act of 2021 hasn’t been passed yet and is still in the early stages. It was first brought to the public’s attention on April 14, 2021, and was officially brought to Congress with a few alterations on July 15. It still has a while to go before it would be available for homebuyers to use – it would need to be approved by the House of Representatives, the Senate, and then signed by the President before becoming law. However, those who are struggling to purchase a house have something to look forward to if this bill is approved. In the meantime, if you need help with your down payment, check out RateZip’s Down Payment Assistance Database, which lists grants and programs by state. Additionally, you can search for and compare lenders with low rates right here on RateZip!