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What is the Down Payment Toward Equity Act of 2021?
The Down Payment Toward Equity Act of 2021 is a piece of legislation that was introduced to Congress on 14th April 2021.
It is aimed at addressing the rising concerns over several issues.
One of them is the skyrocketing prices of homes, and the other is the continued inability to access assistance when buying a property.
The act also helps address the gaps in homeownership and wealth that keep widening all over the country.
It was introduced by Rev. Raphael Warnock and is being sponsored by U.S.A Senators Tim Kaine and Mark R. Warner. They sought to include it in the package of Build Back Better. Ref: Tim Kaine Senate.Gov
This is part of the Biden administration’s promise of giving direct financial assistance to Americans to help them purchase quality homes. he bill is also co-sponsored by U.S. Senators Sherrod Brown (D-OH, Chris Van Hollen (D-MD), and Elizabeth Warren (D-MA)
It intends to make available federal grants, which will be accessed via local entities to help the first-generation homebuyers acquire a house.
It aims at providing funds via the U.S Department of Housing and Urban Development to all the states. It also aims to bring in down payments, costs that will lower interest rates, and closing costs.
It aims at providing those homebuyers who fit into a certain criterion with up to $25,000 for down payments or other closing-related costs.
$20,000 is the minimum one can get, with the five grand that top it up being given to those who satisfy additional criteria.
Its main aim is not to give money to anyone seeking to purchase a home but to provide much-needed assistance to potential homebuyers.
These property buyers come from communities and backgrounds that put them at a disadvantage.
It wants to inject some level of balance into the growing levels of inequality all over the country. This explains the essence of the eligibility benchmarks being put into place.
It is fashioned for first-time homeowners to assist in purchasing homes. This can enable them to develop roots and increase the wealth of their household.
This is a positive step towards reducing racial disparities so common in the current state of affairs.
The ownership of homes is crucial due to home equity being the biggest source of wealth in the United States. The equity is estimated to be worth over $21 trillion, and the majority of homeowners are White.
The gap of homeownership between Whites and Hispanics currently stands at 25%, and that between Whites and Blacks stands at 30%.
Similar acts include the 1968 Fair Housing Act and the Housing and Urban Development Act.
It is the best piece of legislation that seeks to level the playing field for the disadvantaged since these acts.
The Down Payment Toward Equity Act of 2021 also provides incentives for long-term ownership of homes to raise household wealth standards.
The Qualification Criteria
It is worth considering that this is a bill, not yet a law, which makes it susceptible to change.
As it stands, for those seeking qualification for the minimum $20,000, you must meet some of the requirements, which demand that:
You need to be a first-time property buyer;
This requirement is not intended to keep off anyone who has ever owned a home at some point in their lives. Rather, it aims at giving a higher preference to those who have owned none in the past three years.
This brings the group of people whose parents never owned a house into the fold. If they did, they had to lose it due to foreclosure or, for some reason, don’t own one currently.
This The Down Payment Toward Equity Act of 2021 also counts those who have gone into foster care as first-generation homeowners.
Purchase the house as the primary residence;
This grant under The Down Payment Toward Equity Act of 2021 will not be available to those seeking to develop their investment properties.
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Use a mortgage that is qualified for government backing to buy the house;
The act favors the individuals who have mortgages that are qualified and adhere to any of the guidelines of the government mortgage agencies.
These agencies include Fannie Mae, VA, Freddie Mac, FHA, and USDA. USDA and VA do not allow down payment, Fannie Mae and Freddie Mac require a 3% down payment.
The FHA requires a 3.5% down payment. Jumbo mortgages and other mortgage loans that do not qualify are not eligible for the grant.
Have annual earnings below 120% median income or 180% for areas of high cost;
Those living in big cities and other places such as the Bay Area will find it easier to meet this requirement.
To be granted the extra $5,000, you should be part of a group of people who have been prejudiced based on their racial or ethnic backgrounds. This includes Black, Asian American, Hispanic, Native American, and any combination.
Those excluded due to systematic injustices will witness a scale balance, a long overdue one.
Its Working Principle
The amount of money that your eligibility makes available to you is to be made available to you during the closing period. This money is not a credit on tax or a type of loan that demands repayment.
Instead, it is a government grant which demands no compensation in most cases. The eligible homebuyers can use the money as they see fit.
If it passes to be a law, the home buyer will not be required to collect their grants. The mortgage lenders will automatically do it for you.
Your job is buying a home, presenting yourself during the closing, and your money will be on the wait. The home buyers under the program should participate in home purchase counseling sessions from counselors approved by the government. Most of them take two years to complete.
Its Repayment Program
No repayment is required of the homeowner since it is a grant. However, some situations might require you to pay a piece or the whole sum you got. This is if you go on and sell the house within the first five years of your purchase.
The amount you should pay back reduces with time. This includes paying back 20% of the sum you received if you sell the house during the fifth year of your residence. It is as shown below:
1st year; 100% repay/$25,000
2nd year; 80% repay/$20,000
3rd year; 60% repay/$15,000
4th year; 40% repay/$10,000
5th year; 20% repay/$5,000
The Down Payment Toward Equity Act of 2021 can open many possibilities to first-time, economically-disadvantaged, and first-generation property buyers.
Most renters look forward to purchasing a home, but skyrocketing property prices have locked them out. Besides, pandemic-related income loss and student loans have kept these individuals from saving enough funds for a down payment. This bill can eliminate that barrier for good.
See Also: Is Biden First Time Homebuyer Act For You?
Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
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