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Congress Introduces First-Time Homebuyer Act

Posted On May 04, 2021

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Last week we looked at President Biden’s Downpayment Toward Equity Act of 2021. Initially, it seemed like it was an updated version of his proposed tax credit. However, last Tuesday, two U.S. Representatives introduced another bill called the First-Time Homebuyer Act, which would more closely resemble Biden’s original tax credit plan.

On April 26th, 2021, Representative Earl Blumenauer (D-OR) and Representative Jimmy Panetta (D-CA) introduced the First-Time Homebuyer Act. Unlike the Downpayment Toward Equity Act of 2021 (introduced on April 14th by Representative Maxine Waters (D-CA)), this program is a tax credit (not a grant).

What is a tax credit?

A tax credit is money that you can subtract from your annual federal tax dues. Unlike tax deductions, which can reduce your taxable income, tax credits can reduce the actual amount of money you owe the government. Therefore, they are generally more favorable than tax deductions.

There are three main types of tax credits: non-refundable, refundable, and partially refundable. The First-Time Homebuyer Act will be a refundable tax credit. This means that you could receive a tax refund larger than the amount of money you owe – also known as a negative federal tax liability. Unlike the down payment grant, which would be money available at the time of closing, the tax credit would likely be deducted from your taxes at the end of the year, though exact implementation of the credit has yet to be announced.

“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,” said Sunny Shaw, the president of the National Association of Housing and Redevelopment Officials.

Who is eligible for the First-Time Homebuyer tax credit?

The First-Time Homebuyer Act has similar eligibility requirements as the Downpayment Toward Equity Act. To be eligible for the full First-Time Homebuyer Act tax credit, you must:

  • Be a first-time home buyer – You can’t currently own a home or have previously owned a home within the past three years.
  • Meet income limitations – Your income must be no more than 160% of your area median income.
  • Meet purchase price limitations – Your home’s purchase price must be no more than 110% of your area median purchase price.
  • Meet property requirements – You must be purchasing the property as a primary residence and live there for at least four years.

How much is the credit worth?

Eligible home buyers can receive up to 10% of their home’s purchase price or $15,000. This doubles the amount of money available to buyers through the 2008 Housing and Economic Recovery Act. In 2008, 1.5 million home buyers used the tax credit help finance their purchase.

The first-time home buyer tax credit was a “key campaign promise of President Joe Biden,” said Representative Blumenauer. “This legislation is just one element of the big, bold housing agenda that we are promoting to combat the housing affordability crisis and address centuries of overtly […] discriminatory housing policies that have left massive wealth, homeownership, and opportunity gaps between […] communities.”

Like the Downpayment Toward Equity Act, this bill will need to be passed by the House of Representatives in order to move forward. We will continue to share more information on the bill’s progress, and if you’re looking for down payment assistance right now, let us know.

 

Sources: HousingWire, Investopedia