Federal legislation proposed recently seeks to provide down payment assistance in the form of a grant to first-time home buyers who meet certain criteria. In this context, a “first-time” buyer is one who has not purchased a house within the past three years.
The down payment program would offer borrowers financial help in the form of a grant. Monetary assistance would be limited to $20,000 for some borrowers, or $25,000 for borrowers who are socially or economically disadvantaged.
The down payment grant program is only in the proposal stage right now, and would have to earn approval from both the Senate and House of Representatives before taking effect. This is just one of several housing-related initiatives being pursued by the Biden administration. A home buyer tax credit has also been proposed.
Proposed: Down Payment Grants for First-Time Buyers
To be eligible for a down payment grant under this assistance program, participants must be first-generation home buyers. “First-generation” means that the person’s parents have either (A) never owned a home in the past, or (B) owned one but lost it due to foreclosure, short sale, etc.
And don’t be fooled by the “first-time buyer” language used here. Like most of these federal programs, the down payment grant initiative would be open to those who have not owned a house within the past three years.
To be clear: This is not a tax credit. While a first-time home buyer tax credit has also been proposed, the Downpayment Toward Equity Act of 2021 is a separate thing entirely. It would offer a grant to qualifying borrowers, which could be applied toward the down payment on a house.
Through this newly proposed grant program, borrowers would not have to repay the money if they stay in the home for at least five years. Those staying less than five years would have to repay some or all of the money.
Eligibility Requirements for the Assistance Program
Like the bill itself, the requirements for the 2021 first-time home buyer down payment assistance program have yet to be finalized. So all we know at this point is what’s included within the “discussion draft.”
The National Council of State Housing Agencies (NCSHA) recently published a summary of the discussion draft, covering all of the key points for this proposed legislation. If the down payment grant program wins congressional approval, HUD would manage it with assistance from state housing agencies.
Here are some of the details and eligibility requirements for the assistance program:
- Home buyer grants (assistance) would be available up to $20,000 for eligible borrowers. Those borrowers who are considered to be “socially and economically disadvantaged” could qualify for an amount up to $25,000. This money could be applied to the home buyer’s down payment expense, removing a major hurdle to homeownership.
- This bill defines a socially disadvantaged person as someone who has 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.” This could include borrowers who identify as Black, Asian American, Hispanic, Native American, or “any combination thereof.”
- The down payment assistance grant program would be compatible with several different loan types, including government-insured mortgage programs like FHA and VA. Conventional home loans that are eligible to be purchased by Fannie Mae or Freddie Mac would also fall under this program.
- Home buyers seeking a down payment grant would have to complete a housing education and counseling program. The counseling program must be offered by a HUD-approved housing counselor.
- Those borrowers who use down payment assistance and stay in their homes for five years or more would not be required to repay the grant. Those who “stop occupying their home less than a year” after they buy it would be required to pay it back in full. The repayment requirement would decrease by 20% for each year the borrower lives in the home — and would be fully forgiven after five years.
Where It Stands, and What Happens Next
Again, none of this has been finalized yet. If the 2021 down payment assistance grant program clears both houses of Congress, it could get revised along the way. So it might look different from the summary provided above. We’ll keep you posted if, when, and how this legislation gets passed.
The Downpayment Toward Equity Act of 2021 is only in the proposal and discussion stage right now. The House Financial Services Committee discussed it during an April 14 hearing. But they haven’t yet published any comments or decisions from that hearing. We will likely hear more about it in the days or weeks ahead.
In order for the first-time down payment grant program to be passed into law, it would have to gain approval from both the Senate and the House of Representatives. And we’ve seen how that process goes — or doesn’t go, in some cases. The assistance program proposed for 2021 could also get lumped into a broader stimulus or infrastructure bill. That could potentially lead to a back-and-forth debate between Democrats and Republicans.
In other words, don’t look for this program anytime soon. If it does get a green light, that would probably happen during the latter part of 2021.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author