Homeownership is seen as an important pillar for American prosperity. For the economy as a whole and (more importantly) individuals and families, homeownership creates stability and longterm wealth. Supporting first-time homebuyers is often a priority for the federal government.
For first-time homebuyers, purchasing a home can seem difficult. For some, especially those whose parents never owned their own property, it can seem nearly impossible. A new proposed bill, called the LIFT Act, hopes to make it easier and more affordable to purchase a home and build equity in this important phase of personal prosperity.
The bill, which is not law but merely a proposal, is targeted towards people who have never owned a home and come from families who were not homeowners. If it becomes law, it could be a life-changing resource that helps thousands of people enter the all-important world of homeownership.
The LIFT Act: A Potential Opportunity for First-Generation, First-Time Homebuyers
Government proposals can be complex and over-burdened with endless details. (Bills from both sides of the political isle are guilty of this.) Deciphering the details is this proposal is just as difficult as any, but compared to many the bill is fairly straightforward.
Essentially, the bill attempts to create a 20-year mortgage with low initial costs that would have roughly the same payments as a 30-year loan. (The payments on a 20-year mortgage would be larger, assuming the loan total is the same.)
It would create a 20-year mortgage with a low interest rate that would be available to homeowners who have never owned their own home and did not have parents that owned a home.
The law would create a program inside the Department of Housing and Urban Development (HUD), and there would also be a consultation role from the Treasury Department.
Here’s How it Would Work, According to Bill’s Authors
How bills work after they are enacted, and how a bill’s authors’ say it will work, are often two very different things. However, the authors of the LIFT Act, which includes five Democratic senators from three different states, say that taxpayer money would subsidize the interest rate and origination fees. This money would come through the Treasury Department.
Using the subsidies, the 20-year mortgage for first-time homebuyers would be structured so that the payments reflect a 30-year fixed-loan mortgage. Essentially, this would allow homeowners to build equity in their homes at a much faster rate. After 20 years, the mortgage would be paid off and they would own the home outright.
By allowing borrowers to build equity through the homes at rates faster than normal, this act could improve the power of homeownership and give this power to numerous Americans who are less likely, statistically speaking, to purchase a home in their lifetime.
When paired with well-targeted downpayment assistance programs, this act could be even more powerful, creating significant opportunities for aspiring homeowners.
Who Would Qualify for this Loan Program?
If the program were to pass, which is certainly not guaranteed, borrowers would need to meet three specific criteria to be eligible:
- First, they would have to be a first-time buyer. It’s not entirely clear yet how the government would define first-time homebuyers in this case. It seems fairly straightforward; if you’ve never owned a home in your life, you are a first-time buyer. However, some programs categorize people who, despite owning in the past, have not owned a home for a certain period (perhaps five years) as first time buyers. So if you owned in the past but haven’t for a certain time, you could be considered a “first-time buyer.”
- The second criteria is that you need to be a low- or medium-income buyer. According to the proposed bill, you are only eligible if your income is no greater that 120% of the area median income. The math on this can be tricky, but if you have a moderate or low income, you are likely eligible.
- The third criteria is first-generation homebuyer. So far, it’s unclear how this will be defined. If your parents owned a home, you would not be eligible for this program. But what if one parent owned a home and the other did not? What if neither of your parents owned but one of your grandparents was a homeowner? These are a few details that still need to be worked out if the bill were to become law.
Will this Bill for First-Time Homebuyers Pass?
Currently, the LIFT Act is only a bill, and it could face opposition in Congress. If you read statements from the bill’s authors, it seems like an obvious slam dunk. After all, who wouldn’t want to support housing for low-income, first-generation, first-time homebuyers?
But in a time when many people are concerned about large government spending, adding another financial burden to America’s tax payers could create opposition. No one is going to oppose the support of homeownership, but another program, no matter how noble, at the expense of the American taxpayer is always a tough sell.
Currently, the House of Representatives is controlled by Democrats. Since this is a bill created by and proposed by Democrats, it seems likely to pass that governing body. The Senate, however, creates a greater challenge. Currently split 50/50 between the major parties, with the Vice President getting a tie breaker, the bill could pass along party lines in that body as well. However, if just one budget-hawking Democratic Senator votes against, and no Republicans vote for the bill, it could fail.
First-Time Homebuyer? Here are a Few of Your Options
The proposed LIFT Act could be a major advantage for numerous homebuyers. But it’s not the only potential option. Even if it sputters out in Congress or gets voted down, there are still options for low-income first-time homebuyers.
The Conventional 97 from Fannie Mae and Freddie Mac, for example, allows for an affordable loan with only a 3% downpayment. USDA loans, VA loans, and FHA loans are all designed to make entering homeownership more affordable.
If you want more information on available financing options for first-time homebuyers, contact our team today. We’ll make sure you have the right information to make the best choice for your future!
