A new bill in Congress could help Americans struggling to become homeowners

Dated: October 20 2021

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If approved, the Low-Income First Time Homebuyers (LIFT) Act of 2021 would offer 20-If approved, the Low-Income First Time Homebuyers (LIFT) Act of 2021 would offer 20-year mortgages with low interest rates to first-time, lower-income homebuyers, particularly people of color. This could help new homeowners build much-needed equity quickly.

But it remains unclear whether a bill like this would pass—let alone actually work in this white-hot, competitive real estate market where all-cash offers reign supreme.

Five Democratic senators proposed the bill: Tim Kaine of Virginia, Hillary Clinton‘s former vice presidential pick; Mark Warner of Virginia; Chris Van Hollen of Maryland; and the two freshmen from Georgia, Raphael Warnock and Jon Ossoff. It was introduced late last month.

The best part for buyers on tight budgets is the government-subsidized loans would require roughly the same monthly payments as the traditional 30-year mortgages, even with a down payment well under 20%. Typically, the shorter the loan, the more expensive the monthly payments because borrowers are paying it off earlier.

The lower mortgage interest rates plus the shorter loans would allow homeowners to build equity (and therefore wealth) about twice as fast as buyers with the longer loans. Homeowners could borrow against that equity in an emergency, to help their kids pay for college or even just to do some home improvements.

Could a loan like this work in today’s hot housing market?

Whether a loan like this would work in today’s competitive housing market is the big question. Buyers with mortgages are at a disadvantage against all-cash offers. And those with government loans are competing with other buyers and investors with higher down payments—something sellers like to see. Plus, buyers still need closing costs.

“I don’t think this is the best way to increase the number of people who will become first-time homebuyers over the next few years,” says Doug Ryan, interim vice president of policy and applied research at Prosperity Now. The nonprofit organization is focused on helping lower- and moderate-income people and communities of color build wealth.

“Home prices in so many markets are escalating so quickly that the down payment and the closing costs are the barrier for most,” adds Ryan.

He would like to see policies to provide down payment assistance as well as increase the supply of homes for sale. The record-high prices are a result of the nationwide housing shortage. (Nationally, the median home list price was $380,000 in September, according to the most recent Realtor.com data.)

This bill comes on the heels of President Joe Biden‘s plan to offer first-time buyers a $15,000 tax credit. Democratic Rep. Maxine Waters of California also introduced a bill earlier this year to provide up to $25,000 in down payment assistance for first-time, first-generation homebuyers.

“Something to help first-time homebuyers will pass,” says Ed Pinto, who worked on this idea. He is the director of the Housing Center at the right-leaning American Enterprise Institute. “The first few rungs of the housing ladder are broken because of escalating prices.”

But those getting these mortgages may not have much success in pricier parts of the country, such as the San Francisco Bay Area, New York, and other coastal cities. In the most expensive and competitive parts of the country, sellers generally want to see much larger down payments, such as 20% and above, and as few contingencies as possible. That puts someone with one of these lower down payment, government loans at a big disadvantage.

Lower-income buyers may also have a harder time affording real estate in these areas. However, the loans could be more successful in cheaper areas, such as in the Midwest and South, says Hale.

Who would be eligible for one of these loans?

The mortgage would be tailored to first-time, first-generation homebuyers who earn 120% or less of their area’s median income. Monthly payments would decrease slightly over time as borrowers build equity in their homes and no longer need the mortgage insurance that most homeowners have until they have 20% equity in their properties.

The mortgages would be subsidized by the federal government to lower the interest rates and loan fees.  For the full article, click here.  This article was written by Clare Trapasso.

If you want to know if you qualify for a home, please contact me, I would love to help.  Just text my name:    melaniehood    to  85377    to get my phone and email address or visit my website.  

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Melanie Hood

Melanie Hood is a Realtor, licensed in Denver, Colorado and she specializes in the Denver Metro Area to include Lakewood, Arvada, Wheatridge, and Golden. Melanie also specializes in helping Seniors fi....

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