First-Time Homebuyer $15K Tax credit and $25K Grant

The Biden administration has delivered on a campaign promise to deliver a first-time home buyer credit. A new bill called the First-Time Homebuyer Act includes a tax credit of $15,000 for first-time buyers. The Down Payment Toward Equity Act also introduced plans for a $25,0000 grant. Neither bill has passed yet but both have the support of prominent members of congress. Eligibility for the tax credit will be based on a number of factors. These include income and home price. The tax credit will be available to anybody that has not owned a home in the last three years. However, the $25,000 grant will be reserved for first-time buyers.

How does a first-time home buyer credit work?

People often confuse tax credits with tax deductions. A tax deduction lowers the total amount you are required to pay tax on. A tax credit, on the other hand, lowers the total tax bill you have to pay. So, once your tax bill is calculated, you can claim the tax credit and $15,000 will be deducted. The first-time home buyer credit will also be refundable. As a result, if you owe less than $15,000 in tax and you claim it, you will be paid the difference. If passed, the bill could put money back in the pockets of home buyers. The credit can only be claimed for the year that you bought the house. This means you would apply for it when submitting your taxes in 2022, not in 2021. Although other first-time buyer programs exist, the new proposed bill is more beneficial.

 

How will the First-Time Homebuyer Credit Help People?

The proposed bill aims to make it easier for people to buy a home. This is especially important as the costs of buying a house increase. If it passes, buyers will be able to claim 10% of the value of the home, up to $15,000. In its current form, the bill allows claims on any home purchased after 31st December 2020. The bill is designed to be an incentive to buy property, especially for disadvantaged communities. Homeownership amongst ethnic minorities is significantly lower than white communities. For example, there is a homeownership gap of 50% between black and white communities in Minneapolis. The first-time home buyer credit aims to address this gap. The hope is that removing financial barriers will increase homeownership in minority communities.

What are the Eligibility Requirements?

Anybody wanting to claim the first-time home buyer credit will need to meet eligibility requirements. Past homeownership and household income will both be considered. Anybody who has owned a home in the last three years is not eligible. Gross income must be 160% or lower than the median average for the area. Additionally, the cost of the home must be 110% or lower than the average for the area. These criteria must be considered when getting a quote for mortgage.

Buyers will not be required to repay the money. However, they do need to live in the property for at least four years. If they sell the home before this time, they will have to repay some of the funds.

First-Time Homebuyer $15K Tax credit and $25K Grant

The first-time home buyer credit is not the only proposed bill aimed at helping first-time buyers. The Down Payment Toward Equity Act includes details of a $25,000 grant. It will only be available to any first-generation home buyers. A first-generation home buyer is somebody whose parents have never owned a home. Additionally, their income must be 120% or lower than the average for the area. This is increased to 180% in high-cost locations.

The grant is to be used for a down payment to buy a home. When using a mortgage quote calculator, buyers can input the grant amount to determine what they can afford. It is not a loan, therefore it does not generate interest and does not need to be repaid. This measure is also designed to increase homeownership amongst disadvantaged communities.

First-Time Homebuyer $15K Tax credit and $25K Grant

When will the First-time Homebuyer Credit and Grant Come into Effect?

Both bills are in the early stages of the process of being passed. As a result, they need to go through various committees before moving forward. During this time, the bill may be redrafted. The new version will then be voted on by the full chamber. The bill then goes to the Senate if the vote is successful. Finally, it will go to the President’s desk to be signed and become law.

We do not yet know whether the bills will be passed, but it is clear that the Biden administration is dedicated to housing reform.

Sources

https://www.reuters.com/article/factcheck-25kcredit-bill-idUSL1N2MU143

Ihttps://www.bankrate.com/mortgages/first-time-homebuyer-loans-and-programs/

https://www.cnbc.com/2020/08/21/why-the-homeownership-gap-between-white-and-black-americans-is-larger-today-than-it-was-over-50-years-ago.html

https://www.ncsha.org/wp-content/uploads/Summary-of-DPA-Toward-Equity-Act-of-2021-House-Discussion-Draft.pdf