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Boost your down payment with help from Uncle Sam

house model on euro cash stack closeup
Smit / Shutterstock

One of the bills, which sponsors are calling "The Downpayment Toward Equity Act of 2021," would create a grant program allowing states to provide first-timers with cash for down payments, closing costs or fees that result in lower mortgage rates.

Malcom Glenn, spokesman for the online mortgage lender Better, tells Moneywise that if enacted in its current form, the legislation would make 10% of the nation’s renters — about 4.37 million people — eligible for down payment assistance.

To qualify, individuals must meet income requirements and be "first-generation" homebuyers, meaning anyone who has either never owned their own home or who owned a home once but lost it due to financial distress, including foreclosure.

The bill, which was introduced last month, provides eligible homebuyers with up to $20,000 in assistance or as much as $25,000 if the buyer qualifies as socially or economically disadvantaged.

An earlier draft of the proposal provided up to $15,000 in down payment assistance, the amount Biden originally pitched. For most Americans, that’s a substantial amount of money. It would take the typical renter 14 years to save a down payment of that size, based on calculations from Moody’s Analytics.

The amount you’ll be required to pay back depends on how long you own your first home. If for some reason you aren’t living in it within a year of purchase, you’ll have to reimburse the full amount the government floated you.

Otherwise, the amount you’re required to pay back falls by 20% every year. Occupy your home for five years and you and the program can go your separate ways.

If the bill passes and you start home shopping, one important step will be making sure your credit score is as high as possible. The lower your score, the higher the mortgage rate you’ll be asked to pay, so check your credit score for free and work on strengthening it before you apply for a loan.

Don't miss

Get a lower tax bill — or money back

Tax Credits Claim Return Deduction Refund Concept
Rawpixel.com / Shutterstock

The second bill, introduced in late April and dubbed the “First-Time Homebuyer Act,” would provide a tax credit of up to 10% of a home’s purchase price — or as much as $15,000 — to first-timers.

The tax credit is refundable, meaning if the amount is larger than what you owe on your taxes, you’ll receive a refund for the difference.

"The refundable tax credit proposed in the bill would increase homeownership among low- and moderate-income Americans, especially those from marginalized communities with historically low homeownership rates," says Sunny Shaw, president of the National Association of Housing and Redevelopment Officials.

To access the tax credit, you won’t necessarily need to be a "first-time" buyer. You’ll be eligible if you haven’t owned or bought a home in the past three years.

This proposal is a little more math-y than the other one. To be eligible, you can’t make more than 160% of your area’s median income. That means if you live in, say, Orlando, Florida, where the median income is about $42,000, you won’t be able to participate if you make more than $67,200.

Also, the price you pay for your home can’t be more than 110% of the area’s median purchase price.

Similar to the other bill, if you want to take advantage of the proposed tax credit, you’ll need to use the home you buy as your primary residence for at least four years. Otherwise, you’ll be taxed as a way for the government to recover part of the credit that was provided.

If the legislation passes, borrowers will be able to claim the credit for any primary residences purchased after Dec. 31, 2020.

Don't wait for Washington

Couple moving into their new house
@vkstudio via Twenty20

With the housing market as frothy as it is, thanks to historically low mortgage rates and the pandemic’s positive influence on homebuying, properties are being snapped up in a matter of weeks, if not days, once they’re listed.

In this fast-paced environment, waiting for Congress to hammer out a solution for first-time homebuyers could leave you on the outside looking in — while home prices continue to rise.

One strategy you can use to free up some much-needed cash flow is to consolidate your various debts. Taking out a single loan to pay off multiple creditors can significantly reduce the amount of interest you’re paying every month. Use that money to strengthen your down payment instead.

If student loan debt is limiting your buying power, you may be able to refinance your student loans and slash your monthly payments. Put that newfound cash toward your closing costs.

And if it’s your earnings that need a boost, there’s a simple, affordable way to generate real returns in the stock market — by investing nothing more than your "spare change." Use this money for the expensive bottle of wine you’ll buy to celebrate closing day.

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About the Author

Clayton Jarvis

Clayton Jarvis


Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.