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What is The $25,000 Downpayment Toward Equity Act? [Explained]
First-time home buyers may be eligible to receive a $25,000 cash grant to purchase a new home.
The Downpayment Toward Equity Act fulfills a campaign promise from the Biden administration: To give Americans down payment assistance for purchasing quality housing.
First introduced in 2021, the White House re-affirmed the cash grant program in President Biden’s 2024 Fiscal Year budget proposal.
This article simplifies the Downpayment Toward Equity Act. We show which first-time buyers qualify for the cash grant, how you can claim it, and when to expect the breakthrough bill to be available.
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- → What Is The Program’s Current Status?
- → What is the Downpayment Toward Equity Act?
- → Why Is This $25,000 Grant Important for First-Time Home Buyers?
- → Who Is Eligible For The Downpayment Toward Equity Act?
- → How Does the Downpayment Toward Equity Act Work?
- → If You Move Within 5 Years, You’ll Pay Some Money Back
- → How To Receive Your $25,000 Down Payment Grant
- → Will the Downpayment Towards Equity Act Become Law?
- → Questions First-Time Buyers Ask About The $25,000 First-Time Home Buyer Grant
What Is The Program’s Current Status?
As of May 31, 2023, the $25,000 first-time home buyer grant remains a bill.
Homebuyer.com maintains a page with status for all first-time home buyer government programs in Congress. We update the page often.
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 as follows:
- July 17, 2021: H.R. 4495 introduced as Downpayment Toward Equity Act of 2021
- September 30, 2021: S. 2920 introduced as Downpayment Toward Equity Act of 2021
- February 10, 2022: Hearings held in Senate
- June 22, 2022: Hearings held in Senate
- March 9, 2023: White House budget allocates $175 billion for affordable housing programs, including $10 billion for cash grants for first-time home buyers
Grant money for home buyers is unavailable until the bill is passed into law.
What is the Downpayment Toward Equity Act?
The Downpayment Toward Equity Act provides 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 May 31, 2023, 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, 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 meet the program’s eligibility requirements.
Get pre-approved to see if you qualify.
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 also reduces racial disparity.
Real estate holds $21 trillion in value, making home equity 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?
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 May 31, 2023, 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. Renters who owned homes more than three years ago qualify 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 moderate income or lower
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 are 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 above the local median income. In San Francisco, eligible home buyers must earn $189,000 annually or less.
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Must use a mortgage backed by Fannie Mae, Freddie Mac, FHA, VA, or USDA
Eligible home buyers must use a mortgage 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 down payment (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 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 directly applied to the purchase transaction.
The standard cash award for first-time home buyers is twenty-thousand dollars, and an additional five thousand dollars is available.
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 for anything purchase-related.
For example, your $25,000 cash grant can be split into a down payment, a lump sum for closing costs, and cash to buy down your mortgage interest rate.
- $20,000 to make a down payment on your home
- $3,000 for your real estate and title closing costs
- $2,000 to buy mortgage discount points
You can also use the first-time buyer cash grant to make accessibility renovations to your home.
If You Move Within 5 Years, You’ll Pay Some Money Back
The Downpayment Toward Equity Act promotes a long-term view of homeownership.
The bill requires homeowners to live in their homes for five years. Buyers who change residence or sell within 60 months forfeit 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 for military deployment and other hardship circumstances. Your mortgage lender can explain your options.
How To Receive Your $25,000 Down Payment Grant
When the Downpayment Toward Equity Act passes into law, cash grants will be automatic payments sent to your settlement or escrow. Your mortgage lender will facilitate the grant and complete your necessary forms.
Your cash grant will be waiting for you on your closing day.
However, if you need your cash grant now and the Downpayment Toward Equity Act bill is moving too slowly through Congress, you can use other down payment assistance programs for first-time buyers, including local tax incentives and low-rate, low-down payment mortgages.
Click here to get pre-approved.
Will the Downpayment Towards Equity Act Become Law?
The Downpayment Toward Equity Act is unlikely to pass into law before the mid-2023 because getting cash grants to home buyers requires multiple government agencies to coordinate, and the budget isn’t passed.
Plus, Congress will need to define how the federal government distributes grants to state, and how states move money to local title companies. Those rules are required before cash grants can be made.
In the last congressional session, versions of the Downpayment Toward Equity Act were introduced in the House and the Senate. Neither has been introduced in the new congressional session.
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 Downpayment Toward Equity Act different from the American Dream Downpayment Act?
Yes. The American Dream Downpayment Act is a program that sets up tax-advantaged savings accounts to use towards down payment costs.
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 2023. It will not be passed retroactively. To get updates on the bill when it passes, get a mortgage pre-approval started.
How do I apply for the $25,000 Home Buyer Grant?
You won’t need to apply when the $25,000 Downpayment Towards Equity Act passes. Your mortgage lender will use the information in your loan application to file your request and activate 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?
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 of 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, 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.
Learn more about first-time home buyer qualifications.
Are there restrictions on how I use my first-time home buyer grant money?
Yes, you may use grant funds for a down payment on a home, paying closing costs, reducing your mortgage interest rate, and other home purchase-related expenses.
Will the $25,000 Downpayment Toward Equity Act pass into law before The HELPER Act?
The HELPER Act, for which the official title is “Homes for Every Local Protector, Educator, and Responder Act”, is a no-money-down, no mortgage insurance program for teachers, law enforcement officials, and firefighters. We expect the HELPER Act to pass into law as early as mid-2023.
Can I combine the $25,000 Downpayment Toward Equity Act with other first-time home buyer bill?
Yes, eligible home buyers can stack the Downpayment Toward Equity Act with other available buyer programs including The HELPER Act mortgage, the $15,000 First-Time Home Buyer Tax Credit, the DASH Act, and more.
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