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Down Payment Toward Equity Act–Everything You (Might) Need to Know

By Jacinta Sherris
downpayment toward equity act

Home prices in the U.S. have skyrocketed in recent years. Meanwhile, wage growth hasn’t been nearly as impressive. The homeownership rate among young Americans—especially millennials—is significantly lower than older generations when they were around the same age. 

President Biden has taken notice of this discrepancy, and he made this issue a forefront of his campaign. He’s drafted several pieces of legislation on the matter. Most recently, he proposed the Down Payment Toward Equity Act of 2021, which is also referred to as the first-time homebuyer tax credit 2021, and it has been making headlines. 

As of this writing, the proposed bill has not been passed. It’s now up to Congress to weigh the pros and cons before they vote on their final decision. In the meantime, we’ll be discussing everything you need to know about what’s in the Down Payment Toward Equity Act of 2021, who will qualify for assistance, and what it means for first-generation home buyers.

Bill proposed yet to advance to vote 

Since its introduction, there’s been a host of misinformation circulating on social media about the Down Payment Toward Equity Act of 2021. For starters, lawmakers have not passed the proposed bill at this time. On July 15, 2021, this NCSHA endorsed bill was introduced by House Financial Services Committee Chair Maxine Waters. It’s currently undergoing a review, so Congress has yet to make a vote. 

There are also rumors circulating that the proposed bill won’t require first-generation home buyers to make a downpayment. This isn’t true. The proposed bill might end up offering $25,000 in assistance to economically disadvantaged, first-time homebuyers. But as of now, Capitol Hill hasn’t finalized anything. 

What’s in the bill?

The proposed Down Payment Toward Equity Act of 2021 aims to provide financial assistance to economically disadvantaged, first-time homebuyers. The goal is to combat the rising costs of housing and provide people who would otherwise be excluded from owning a home with access to an important component of wealth creation. 

The proposed Down Payment Toward Equity Act of 2021 may allow qualifying homebuyers to receive up to $25,000 in the form of a grant towards a down payment or closing costs. Not everyone will qualify for this type of assistance. There are thresholds on income and the purchase price of the home. 

Homeowners who receive this type of assistance will have to pay back their grant money if they stop occupying the home less than a year after purchase. The amount of money that homeowners are required to pay back decreases by 20% each year after their purchase, and it is completely waived after five years of occupying the home. 

If passed, who would qualify?

The proposed Down Payment Toward Equity Act of 2021 only offers assistance to qualifying individuals. Otherwise known as first-time home buyers, these are people who meet certain income requirements and fit the definition of “first-generation” home buyers.

“First-time home buyers” are people who haven’t owned a home in the past three years. “First-generation home buyers” are anyone whose parents or guardians have either never owned a home or they have owned a home, but they lost it to foreclosure, short sales, or another situation in which they don’t currently own a home. Anyone who lived in foster care is also considered a first-generation home buyer. 

Individuals must fit both these definitions to qualify for assistance. They will also have to fall within a certain income limit. 

Qualifying home buyers will need to show their income is at or below 120% of the area median income (AMI) for the area the home is being purchased in or the area where the home buyer’s current residence is located. 

Homebuyers purchasing homes in high-cost areas must have an income at or below 180% of the AMI for the area where the home is being purchased. You can read the complete list of qualifications here

Preparing my credit score for homeownership

We can’t say for certain whether the Down Payment Toward Equity Act of 2021 will pass in its current form. But if it does, it will bring about a new wave of opportunities for traditionally economically disadvantaged homebuyers. 

Are you getting excited about the prospect of owning your first home? You should be. Owning a home is an important step towards financial security and building long-term wealth. 

While the proposed bill offers some financial assistance, you still won’t be able to secure a mortgage if your credit score isn’t up to par. 

Your credit score is one of the most important determining factors when it comes to getting a mortgage. It tells lenders how responsible you are with debt and whether they can expect you to meet your payment obligations. A higher score can also help you save big when it comes to interest rates. 

As you’re waiting for the Down Payment Toward Equity Act of 2021 to pass, make sure to get a head start on improving your credit score. At MoneyLion, we have just the tool to help you boost your credit score and get a little extra cash in your pocket at the same time.

Get One Step Closer to Homeownership with a Credit Builder Loan 

MoneyLion’s Credit Builder Loan is designed to help people boost their credit score through consistent, timely payments with a competitively low interest rate. There’s no credit check to qualify and you’ll receive a portion of your funds upfront. The rest of your cash will be kept in an interest-earning reserve account which you’ll be able to access after making your initial payments. 

You can access up to $1,000 in Credit Builder loan funds plus additional MoneyLion banking products like cash advances, budgeting tools, credit monitoring tools, investing accounts, educational resources, and more! Over half of Credit Builder Plus members boost their score by up to 60 points in just 60 days. Learn more here!

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