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What is Biden’s $25,000 Downpayment Toward Equity Act? [Explained]

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First-time home buyers may soon receive up to $25,000 in cash to purchase a new home.

On April 14, 2021, lawmakers introduced seventeen housing-related bills.

One of the bills, the Downpayment Toward Equity Act of 2021 fulfills a campaign promise from the Biden administration: To give Americans direct financial assistance to purchase quality housing.

The grant proposal, known as the $25,000 First-Time Home Buyer Grant, is one of several first-time home buyer grants and credits moving through Congress.

This article simplifies the Downpayment Toward Equity Act. We show who qualifies for the grant, how to claim it, and when you can expect to the first-time home buyer grant to be available.

$25,000 First-Time Home Buyer Grant Gets A New Co-Sponsor

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What Is The Program’s Current Status?

As of June 29, 2022, the $25,000 first-time home buyer grant remains a bill. There are versions in discussions within the House and also the Senate.

Rep. Maxine Waters authored the House version of the bill, which has 64 co-sponsors. Senator Raphael Warnock authored the Senate version of the bill, which has six co-sponsors.

The bill’s timeline is:

  • July 17, 2021: H.R. 4495 introduced in the House of Representatives as Downpayment Toward Equity Act of 2021
  • September 30, 2021: S. 2920 introduced in the Senate as Downpayment Toward Equity Act of 2021
  • February 10, 2022: Hearings held in Senate
  • June 22, 2022: Hearings held in Senate

Grant money for home buyers is unavailable until the House or Senate version of the bill are passed into law.

Homebuyer.com maintains a page with status for all first-time home buyer government programs in Congress. We update the page often.

What is the Downpayment Toward Equity Act of 2021?

The Downpayment Toward Equity Act of 2021 provide eligible first-time home buyers up to $25,000 cash for down payment on a home, closing costs on a mortgage, interest rate reductions via discount points, and other home purchase expenses.

As of June 29, 2022, the program requires that home buyers:

  • Be a first-time home buyer
  • Earn a low- or moderate income consistent for their area
  • Buy a home that will be a primary residence
  • Use a government-backed mortgage
  • Be a first-generation home buyer, or have parents or legal guardians who defaulted on a home loan, or lived in foster care during their lifetime

The Downpayment Toward Equity Act may not be used to purchase a second home or rental property, and all home buyers within the household must the meet the program’s eligibility requirements.

Why Is This $25,000 Grant Important for First-Time Home Buyers?

The Downpayment Toward Equity Act is built so first-time home buyers can purchase homes, grow roots, and increase their household wealth.

The bill’s opening paragraph states its goal:

To provide downpayment assistance to first-generation home buyers to address multi-generational inequities in access to homeownership, and narrow and ultimately close the racial homeownership gap in the United States, and for other purposes.

The Downpayment Toward Equity Act of 2021

The bill also reduces racial disparity.

Real estate holds $21 trillions in value which makes home equity is the largest wealth source in the United States.

Today, homeowners are overwhelmingly white. The homeownership gap between white and Hispanic households is currently 25 percentage points, and the difference between white and black households is currently 30 percentage points.

The Downpayment Toward Equity Act levels the playing field for disadvantaged groups. It’s the most powerful piece of housing legislation since 1968’s Fair Housing Act and Housing & Urban Development Act.

The program makes homes more affordable to disadvantaged buyers, and incentivizes long-term homeownership.

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Who Is Eligible For The Downpayment Toward Equity Act of 2021?

The Downpayment Toward Equity Act is not yet law so when we discuss eligibility requirements for the $25,000 grant, we must add a caveat that the language of the bill may change before it’s passed into law.

As of June 29, 2022, home buyers must meet all of the following requirements:

Must be a first-time home buyer

Eligible home buyers must not have owned a home, or co-signed on a mortgage loan, within the last thirty-six months. The bill classifies home buyers who owned a home more than three years ago as first-time home buyers.

Must be a first-generation home buyer, or have lived in foster care

Eligible home buyers’ parents or legal guardians may not have owned a home during the home buyer’s lifetime unless a home was lost to foreclosure or short sale, and the parents or legal guardians don’t own a home currently. This requirement is waived for all home buyers who previously lived in foster care.

Must earn income that’s above-average for an area, at most

Eligible home buyers must earn an income that’s no more than 20 percent over the median income for a metropolitan area. For example, in Portland, Maine, where the median income is $60,000, home buyers must earn $72,000 per year or less to claim their cash down payment grant.

Income exceptions can be made in high-cost areas, such as New York, Los Angeles, and other cities where the cost of living is high.

In high cost areas, eligible home buyers must earn an income that’s no more than 80 percent over the local median income. In San Francisco, eligible home buyers must earn $189,000 per year or less.

Must use a mortgage backed by Fannie Mae, Freddie Mac, FHA, VA, or USDA

Eligible home buyers must use a mortgage that’s backed by one of the five government mortgage agencies – Fannie Mae, Freddie Mac, FHA, VA, and USDA. These entities allow for no down payment (USDA and VA), 3 percent down payment (Fannie Mae and Freddie Mac), and 3.5 percent downpayment (FHA).

Jumbo mortgages are ineligible for the program, along with other non-qualifying mortgage loans.

Must complete an online or in-person homeownership class

The Downpayment Toward Equity Act requires home buyers to complete a government-approved homeownership education course. Courses can be completed in 90 minutes or less and are proven to reduce mortgage default rates.

How Does the Downpayment Toward Equity Act Work?

The Downpayment Toward Equity Act of 2021 is a cash grant for first-time home buyers. It’s neither a loan nor a tax credit. It’s a cash payment made to eligible buyers at closing to be applied to the purchase transaction directly.

The standard cash award for first-time home buyers is twenty-thousand dollars and an additional five thousand dollars is available, too.

To get the additional $5,000, home buyers must qualify as a “socially disadvantaged individual,” which includes all people who identify as Black, Hispanic, Asian American, Native American, or any combination thereof; or, who have 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.

Eligible home buyers can use the money as they please.

If you purchase a home for $100,000, the $25,000 cash grant can be split into a large down payment, a lump sum for your closing costs, and extra cash to buy down your mortgage interest rate.

On your settlement statement, you could apply:

  • $20,000 to make a 20% downpayment on your home
  • $3,000 for your real estate and title closing costs
  • $2,000 to buy a really low mortgage rate

You can also use the first-time buyer cash grant to make accessibility renovations to your home and for anything else home-purchase related.

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If You Move Within 5 Years, You’ll Pay Some Money Back

Real estate wealth is transformative and generational which is why the Downpayment Toward Equity Act promotes a long-term view on homeownership.

The bill requires homeowners to live in their homes for five years at minimum to maximize their grant. Buyers who change residence or sell within 60 months forfeit back a portion of their initial cash grant.

  • Sell or move within Year 1: Repay 100% or $25,000
  • Sell or move within Year 2: Repay 80% or $20,000
  • Sell or move within Year 3: Repay 60% or $15,000
  • Sell or move within Year 4: Repay 40% or $10,000
  • Sell or move within Year 5: Repay 20% or $5,000

There are exceptions to the repayment rule. No repayments are required for buyers who stay in their home for at least five years.

How Can You Receive Your $25,000 Down Payment Grant?

When the Downpayment Toward Equity Act passes into law, it will be an automatic payment made to your closing. Your mortgage lender will facilitate the grant and complete the necessary forms.

All you will be expected to do is buy your home, show up at closing, and find your cash grant waiting.

However, if the bill is moving too slowly for your home purchase timeline, there are other down payment assistance programs for first-time buyers to consider including local incentives and low-down payment mortgages.

What Other Federal Down Payment Assistance Programs Exist For First-Time Home Buyers?

Multiple down payment bills are moving through Congress, both offer up to $25,000 towards down payment assistance.

The Downpayment Toward Equity Act (this one), and the First Generation Down Payment Assistance via the Housing is Infrastructure Act.

Another bill called the Transforming Student Debt to Home Equity Act aims to provide down payment assistance to first-time buyers over-burdened by student loan debt.

What is the First Generation Down Payment Assistance via the Housing is Infrastructure Act?

The First Generation Down Payment Assistance offers a $20,000 grant to use towards home buying expenses. Similar to the Downpayment Toward Equity Act, the bill offers a higher amount of $25,000 for those who are socially or economically disadvantaged.

The qualifying requirements for the Housing is Infrastructure Act are the same as the Downpayment Toward Equity Act in almost every way. The one difference is the definition of a first-generation home buyer.

The Downpayment Toward Equity Act says that buyers’ parents or legal guardians may not have owned a home during the home buyers’ lifetime unless they lost the home to short sale or foreclosure. The Housing is Infrastructure Act says that buyers’ parents or legal guardians may not currently own a home.

This small difference could help a lot more buyers qualify.

This program is still a bill and not yet a law, so it is currently unavailable until it passes.

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Questions First-Time Buyers Ask About The $25,000 First-Time Home Buyer Grant

Since publishing the first version of this article in 2021, Homebuyer.com readers have asked a lot of questions about the Downpayment Toward Equity Act. Here are some of the common ones.

We also maintain a separate list of first-time home buyer tips and questions worth checking out.

If your question doesn’t appear in this list, use the chatbox and ask us live.

Is the $25,000 First-Time Home Buyer Grant the same thing as the $15,000 Biden First-Time Home Buyer Tax Credit?

No. The $15,000 Biden First-Time Home Buyer Tax Credit was a campaign trail talking point that later moved into a bill titled The First-Time Homebuyer Act of 2021. The tax credit bill gives first-time home buyers a $15,000 tax credit to from the IRS.

Read more about the $15,000 First-Time Home Buyer Tax Credit.

Is the $25,000 Home Buyer Grant passed?

No, the $25,000 first-time home buyer grant program is not passed into law. Homebuyer.com expects the bill will pass in some form before the end of 2022. It will not be passed retroactively. To get notifications and updates on the bill and when it passes, get a mortgage pre-approval started.

How do I apply for the $25,000 Home Buyer Grant?

When the $25,000 Downpayment Towards Equity Act passes, you won’t need to apply for it. Your mortgage lender will use the information in your loan application to file the request and trigger your disbursement. The grant will await you at your closing.

How do I know if I earn too much for the Downpayment Toward Equity Act of 2021?

To determine whether your household income is within tolerance for the Downpayment Toward Equity Act, use this government lookup for your area and multiply the result by 1.2. If your income is at or below that figure, you may be eligible for $25,000.

If I have to move for work during the first five years, do I have to repay the $25,000 grant?

Yes, if you move or sell your home within five years using the program, you’re required to pay back at least some of your grant. Your employer may reimburse you as part of your moving expense.

If I’m a first-time home buyer but my fiancee is not a first-time home buyer. Can we use the $25,000 First-Time Home Buyer Grant?

No, to use the $25,000 First-Time Home Buyer Grant, all home buyers must be first-time buyers who meet the program’s eligibility standards.

Are there restrictions on how I use my first-time home buyer grant money?

Yes, you may use grant funds for downpayment on a home, paying closing costs, reducing your mortgage interest rate, and other home purchase-related expenses.

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Dan Green
Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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