It’s no secret that the real estate market is red-hot right now. This housing boom – where sellers are receiving many offers and buyers are overbidding in order to compete – was an unexpected result of the pandemic.
Nearly 50% of homes sold above listing price in May, according to Redfin, and the sale-to-list price ratio has topped 100%. You may be one of the many hopeful house hunters struggling to find homes within their budget.
The federal government is working on options to help would-be homebuyers purchase their first home, including the First Time Homebuyer Act. Let’s examine what assistance future homebuyers would receive if this act passes.
What’s the First Time Homebuyer Act?
With home sales and prices surging across the country, first-time buyers are finding it especially difficult to achieve their dreams of homeownership. U.S. Rep. Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA) introduced the First Time Homebuyer Act in to support first-time homebuyers with a tax credit.
This act is known as the Biden First Time Homebuyer Act because President Joe Biden promised a $15,000 first-time homebuyer tax credit during the 2020 election.
Take note that Congress has not passed this bill yet, and there’s much more of the ratification process to go before the bill becomes law.
If passed, the First Time Homebuyer Act would create a federal tax credit equal to 10% of the purchase price first-time buyers paid for their principal residence – up to $15,000. The credit would be refundable, meaning if it lowered a buyer’s federal income tax bill to zero, they could get any remaining credit back as a refund. But if their filing status is married, filing separately, the maximum credit would be $7,500.
It’s important to note that there’s a chance you’ll have to repay part or all of the down payment assistance if you don’t stay in your home (as a primary residence) for a minimum of five years. If you stop living in your home less than a year after purchasing it, you’ll have to repay the full tax credit. The repayment amount decreases by 20% every year that you live in the home, and phases out completely after five years.
This isn’t the first time a tax credit has been implemented to support first-time buyers. The 2008 Housing and Economic Recovery Act included a temporary first-time homebuyer credit, which nearly 1.5 million households claimed in order to get help purchasing a primary residence.
How will homebuyers receive the tax credit?
Homebuyers who participate in this program will americashpaydayloan.com/title-loans-me have to wait a bit to feel the economic impact of the tax credit. Tax credits are dollar-for-dollar reductions in the amount of tax you owe.
Generally, tax credits put money in your pocket when you file your federal income tax return. The First Time Homebuyers Credit would reduce the amount of tax an eligible taxpayer owes, and possibly result in a refund if the credit reduces their tax bill to zero and there’s excess credit left over.
Who’s eligible for this tax credit?
Not all first-time homebuyers will qualify for the tax credit. To be eligible for the full tax credit, you’ll need to meet the following qualifications:
As mentioned before, if you don’t live in the home for five years, you’ll have to repay part or all of the first-time homebuyer tax credit.
What about Biden’s $25,000 homebuyer grant?
You may also hear a lot of buzz surrounding The Downpayment Toward Equity Act of 2021, which is a grant program that provides up to $20,000 in down payment assistance to first-generation homebuyers. If you qualify as a “socially and economically disadvantaged individual,” you may receive up to $25,000.
Be a first-generation homebuyer whose parents or guardians don’t currently own a home in any state, and whose spouse or any other household members haven’t owned a home within the past three years
Have an income at or below 120% of the area median income where the home is located or where your current place of residence is located
For a home in a high-cost area, have an income at or below 180% of the area median income where the home is located
While the First Time Homebuyer Act hasn’t yet been passed, it’s an exciting prospect for homebuyers who are looking to make their first home more affordable.
About the author: Jacqueline DeMarco has been a personal finance writer for over seven years and is a contributor to Credible. She has contributed content to more than a dozen financial brands, including LendingTree, Credit Karma, Fundera, Chime, MagnifyMoney, Student Loan Hero, ValuePenguin, SoFi, and Northwestern Mutual.