Home buyers have been eagerly awaiting further details about President Joe Biden’s proposed first-time homebuyer tax credit—which originally featured a max of $15,000 per buyer toward their down payment on a home.
United States Rep. Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA) today introduced the new legislation, dubbed the “First-Time Homebuyer Act.” The bill would provide a tax credit for first-time homebuyers of up to 10% of the purchase price, or $15,000.
The first note of significance? The proposal comes in the form of a grant (which would provide funding at closing), rather than being structured as a tax break or refund (which would be received when you filed your taxes the following year).
Here’s what you need to know about the latest proposal:
Funding Source and Distribution Formula
While there isn’t currently an amount set in terms of total funding for the program (Congress will have to debate about the amount of funding they find acceptable for fiscal years 2021 – 2030), assistance limits are currently up to $20,000 per homebuyer (or up to $25,000 if the homebuyer qualifies as a “socially and economically disadvantaged individual”).
The Department of Housing and Urban Development (HUD) will be allocating the funds. Of the total funds provided each year, HUD is required to use at least 5% to support housing counseling activities.
Funding will take into account each state’s population, median area home prices and racial disparities in homeownership. Any unused funds will be reallocated by HUD at the end of each year to states that show they are in need—but only if they meet the Treasury’s program goals.
How Can the Grant Can Be Used?
According to the proposal, funds must only be used to help homebuyers purchase a home. Assistance can go toward a down payment or the closing costs, or to reduce the interest rate on a mortgage.
Funds can be used with the following mortgages:
- One that is eligible for purchase by Fannie Mae or Freddie Mac
- One insured by the FHA or USDA
- One that meets the definition of a qualified mortgage
Who Is Eligible?
The grant is for first-time homebuyers, and in order to be eligible for the full credit, potential buyers must not have owned or purchased a home within the past three years.
The program would be targeted to low- and middle-income earners. Participants must also make no more than 160% of the area median income, and the home’s purchase price must be no more than 110% of the area median purchase price. Borrowers could claim the credit for primary residences purchased after Dec. 31, 2020.
Even homebuyers receiving assistance from federal, state, local, private or nonprofit sources may still be able to receive a grant.
Borrowers would need to use the home as a primary residence for at least four years, or face taxes to recover a portion of the credit.
Additional Rules
Homebuyers who stop occupying their home less than a year after they purchased will need to repay the entire grant. This amount decreases by 20% for each year they live in the home, with no penalty occurring after five years. The penalty would also be waived for home sellers who realize a gain on their sale that is less than the amount they owe.
This draft is simply a kicking-off point to begin 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.
In March, Zillow released a report finding that a $15,000 tax credit could cover the entire down payment for homes in 40 of the 50 largest U.S. metros. The company found that with a 3.5% down payment on a 30-year mortgage with a 3% interest rate, about 9.3 million renter households in the U.S. (27.4%) would spend less than a third of their income on the monthly payment for the median home sold in their metro in 2022.
If you, or someone you know is considering Buying or Selling an Investment Property in Columbus, Ohio please give us a call and we’d be happy to assist you!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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