Pending and Existing Programs for First-time Home Buyers and Support for Renters

• Author: Mary Singleton
• Posted: January 18, 2022

Awaiting approval in Congress is a new bill that could provide up to $25,000 in cash to buy a new home. If the Downpayment Toward Equity Act is approved, this could result in direct financial help for first-time home buyers. Currently, the most popular first-time home buyer program is the FHA Loan. This Federal Housing Administration Loan program can help first-time home buyers qualify for a home loan and secure a low down payment. This potential new law and the existing federal program represent solid options for first-time home buyers, and there is new support for renters available too.

The Downpayment Toward Equity Act of 2021

Referred to as the $25,000 First-Time Home Buyer Grant, the Downpayment Toward Equity Act of 2021 would provide direct financial help to families and individuals looking to get that first home. As part of the Biden Administration"s American Rescue Plan, this grant would potentially provide up to $25,000 at the time of buying a home, instead of later in the form of a tax credit. In particular, the first $20,000 is aimed at first-time, first-generation homebuyers, and an additional $5,000 could be awarded to those qualifying as "socially and economically disadvantaged individuals." Since it is a grant, the money does not have to be paid back, as long as the owner remains in the home for five years. What may be most remarkable aspect is that this grant could cover all upfront costs, including down payment and closing costs, so that a first-time homebuyer could move into a house feeling much more secure.

The FHA Loan and Other HUD Loans

The FHA Loan currently offers help to first-time home buyers in securing a down payment as low as 3.5 percent of the cost of the house. Insured by the Federal Housing Authority, these loans are thus backed by the federal government. That means lenders feel more secure and can offer loans with lower credit scores and down payments. Provided by the U.S. Department of Housing and Urban Development, the FHA Loan is not the only option, though. For example, HUD also offers the Good Neighbor Next Door Program for those who work as police officers, pre-school to high school teachers, and firefighters. These first-time home buyers could receive up to a 50 percent discount on their home. The Public Housing Resident Program is another HUD potential option. Someone who currently resides in public housing could convert their rent into a mortgage program. Further, the USDA loan could be an option, if potential buyers live in a rural area, they could receive a zero-down payment mortgage loan.

State Support for First-time Home Buyers

Many states also offer support to first-time home buyers. For example, in California, veterans could take advantage of this state's Department of Veteran Affairs home loans. Likewise, teachers and employees of both charter and public schools have the option of the Extra Credit Teacher Home Purchase Program, which is offered through the California Housing Finance Agency. Other states such as Colorado provide the HomeAccess Program, which offers a zero-interest second loan up to the amount of $25,000. New York and Illinois are among the states that offer down payment assistance. In Florida, as another example, offers 30-year fixed mortgage rates for first-time home buyers. Along with national programs, first-time buyers can look to their states for help.

Help for Renters and New Rental Assistance

The Downpayment Toward Equity Act may help renters transition to first-time home buyers, but new support is also available for renters. The Emergency Rental Assistance Program was passed at the end of 2021 to provide relief from rental debt and affordable housing difficulties worsened by COVID-19. $25 billion in federal funds have been provided directly to states, territories, and local governments to support households with paying for rent or utilities. States such as California have also established the Rental Assistance Repayment Program to help renters repay unpaid rent. Oregon offers similar support under its Emergency Rental Assistance Program, while the Mayor of New York City is currently calling for help from the federal government to assist renters with new funds for rental assistance.

The pending Downpayment Toward Equity Act promises to provide a pathway to become a first-time homebuyer. The challenges of buying a new home, or maintaining rent, are still considerable, but federal and state programs may provide that much-needed help to both first-time homebuyers and renters.

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