A Guide to the $25,000 First-Time Home Buyer Grant of 2021

The Downpayment Toward Equity Act of 2021

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

On April 14, 2021, lawmakers introduced seventeen housing-related bills. One of the seventeen bills, the Downpayment Toward Equity Act of 2021, addresses a related campaign promise: To give Americans direct financial assistance to help them buy quality housing.

The Downpayment Toward Equity Act of 2021 is currently a bill and, therefore, subject to change. As of April 19, 2021, though, its eligibility standards are:

  • Must be a first-time home buyer
  • Must meet income limitations for your area
  • Must be purchasing a primary residence - no second homes or investments
  • Must use a government-backed mortgage
  • Must be a first-generation home buyer, or have parents or legal guardians who defaulted on a home loan, or lived in foster care during your lifetime

If passed into law, eligible first-time home buyers would receive up to $25,000 cash which they could use for down payments on a house, real estate closing costs, mortgage interest rate reductions, and other home purchase expenses.



 

What Does The Downpayment Toward Equity Act Do?

The Downpayment Toward Equity Act of 2021 is designed to help renters purchase homes, grow roots, and build their household wealth; and, also to reduce racial disparity.

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 to narrow and ultimately close the racial homeownership gap in the United States, and for other purposes.

Homeownership matters because home equity is the largest wealth source in the United States - valued at more than $21 trillion - and 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 then creates an incentive to buy-and-hold.

Real estate wealth comes from compounding gains. Historically, the longer you own a home, the more wealth your household builds.

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

The Downpayment Toward Equity Act is a bill in Congress. Bills aren't law, and bills change before they're passed into law. Therefore, when we discuss eligibility requirements, we have to remember that the rules as they're written today will be different from when the bill is passed into law.

As of today, eligible home buyers must meet all of the following standards:

Must be a first-time home buyer

Eligible home buyers are allowed to have owned a home in the past, but may not have owned a home or been co-signed on a mortgage loan within the last thirty-six months.

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.

Note that 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 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.

How Does The $25,000 First-Time Home Buyer Grant Work?

The Downpayment Toward Equity Act of 2021 is a cash grant for first-time home buyers. It's not a loan, and it's not a tax credit. It's a cash payment made to eligible buyers.

The standard cash award for first-time home buyers is twenty-thousand dollars.

An addition five thousand dollars is available, too, according to the bill's draft version. To get it, 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.

For example, if you purchase a home for $100,000, you could use the $25,000 credit to make a big down payment, cover all of your closing costs, then pay extra to get a lower mortgage rate.

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

How to receive your down payment grant

Home buyer don't have to take action to collect their down payment grants. Mortgage lenders will do it for you, automatically. All you have to do is buy a home, show up at closing, and the money will be there waiting for you.

Home buyers using the program are required to participate in home purchase counseling from a government-approved counselor.

Most programs can be completed in 2 hours.

If You Move Within 5 Years, You'll Have To Pay Some Money Back

For many homeowners, real estate wealth is transformative and generational which is why the Downpayment Toward Equity Act encourages a long-term view on homeownership. According to the bill's draft version, buyers who change their residence or sell within five years of purchase are required to forfeit back a portion of their initial grant.

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

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

Questions Other Homebuyer Customers Are Asking About The $25,000 First-Time Home Buyer Grant

Here is a list of questions from other Homebuyer readers.

If you have a question and it doesn't appear here, use the chat box and we'll answer you live. We'll then add your question to this FAQ because if you're asking a question, there's a great chance another person has the same question, too.

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

Yes, it's the same idea. The $15,000 Biden First-Time Home Buyer Credit was a campaign talking point. The original idea is evolved, and the Downpayment Toward Equity Act of 2021 was introduced as a bill on April 14, 2021.

Is the $25,000 Home Buyer Grant available yet?

No, the $25,000 first-time home buyer grant program is still unavailable. It's currently a congressional bill which could pass in a few weeks, a few months, or maybe never. We expect that the bill will pass in some form before the end of the year. To be informed of the latest program news, Homebuyer publishes a special newsletter for this topic only.

Register for our program emails here.

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

Eligible first-time home buyers don't need to apply for the $25,000 Downpayment Towards Equity Act grant. Your loan application includes the necessary information to triggers your qualification. Your mortgage lender will arrange to have your grant money waiting at your closing.

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

First, type an address into this government lookup. If the 1-unit dwelling value is $548,250, to find the median income for your area, use this chart from the Bureau of Economic Analysis. When you find your median income, multiply it by 1.2 to find the maximum income allowed under the program. If the 1-unit dwelling value is above $548,250, multiply the median income by 1.8 to find the maximum allowed under the program.

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.

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 your grant funds to make a downpayment, pay for your real estate closing costs, reduce your mortgage interest rate, and nothing else. In short, if the cost or fee is paid at closing, it's an eligible cost in the program.

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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