Should Homebuyers Wait For Biden’s Tax Credit?

Right now the demand from home buyers is through the roof, especially from first-time homebuyers. Mortgage rates are still near historic lows and home buyers know they can save a ton over the life of their home loan. However, many potential homebuyers have not jumped fully into the home buying process. Their hope is that the market will shift in their favor in the new year. After all, prices have reached all-time highs and the available inventory of houses is still at record lows. On top of that some first-time home buyers are hoping that they get an extra boost from the federal government to help their purchase. Back in January, President Biden pushed for a first-time homebuyer tax credit of $15,000. Since then, this recommendation has become its own legislation, the First-Time Homebuyer Act of 2021. Should first-time homebuyers wait for this legislation before buying? 

Understanding the First-Time Homebuyer Act

The First-Time Homebuyer Act was introduced as legislation at the end of April. The legislation is designed to help encourage more Americans to stop renting and become homeowners. If passed, it will revise the tax code to give a $15,000 tax credit to first-time home buyers who meet eligible criteria. One of the great parts of this legislation is that it is retroactive to anyone who meets the criteria and bought a house going back to January 1, 2021. If it were to ever be passed, first-time home buyers would not have to do anything special to get the tax credit. It would be applied automatically after you file your taxes. For those whose tax bill is less than $15,000, they would receive the difference in the form of a direct deposit. 

Before we break down the criteria for who will get to benefit from the legislation, it is important to realize this is not the only proposed legislation to help home buyers. The Downpayment Toward Equity Act of 2021 was introduced around the same time. This legislation would give $25,000 to first-time home buyers to use toward a downpayment and more. It can also be used for closing costs, mortgage insurance, and other expenses related to buying a house. This legislation has more restrictions than the First-Time Homebuyer Act. It is limited to first-generation homebuyers, those who lived in foster care, or those whose parents defaulted on a mortgage. 

Eligibility Requirements for the First-Time Homebuyer Act

There are a number of eligibility requirements to qualify for the First-Time Homebuyer Act if it were ever passed. Here is what they are:

First-Time Homebuyer

To qualify for the $15,000 you cannot have been a homeowner within the past 36 months. That means no primary residence, vacation residence, or anything else. 

Can Only Use the Tax Credit Once

Once you use the tax credit, you can never get it again. This only helps you for your first home purchase.

Income Requirements

This legislation is designed to help individuals who have moderate incomes. The income limit changes based on location and size of household. For single-income individuals without others in their household, income cannot exceed 60 percent of the median income for that area. The limits increase along with the size of the household. 

Must Be 18-Years of Age

To qualify for this tax credit you have to be at least 18. The reason for this is to prevent parents from buying a house in their child’s name and pocketing the tax credit for themselves. 

Cannot Purchase the House from a Relative

You must purchase the house from a non-relative to qualify. Again, this is designed to prevent family members from selling houses to each other in order to pocket the credit for themselves. 

Should Homebuyers Wait for These Pieces of Legislation?

Let’s be clear, these pieces of legislation will be incredible for many individuals in our nation. It will help many stop renting and get all of the benefits of homeowenrship. Getting $15,000 off of your taxes or $25,000 to use as a downpayment would make buying a house possible for many who have been denied. However, anybody who is in a position to buy a house now should not wait for this legislation.

First of all, this legislation is retroactive. If you buy a house now and it ends up passing in a few months, you will still get the tax credit as long as you qualify. Remember, the legislation applies to all houses purchased from January 1, 2021 going forward. 

Second, mortgage rates are great right now, but they will probably be going up in the near future. Every increase in your mortgage rate can significantly increase how much money you spend over the life of your home loan.

Third, and this is the most important point, nobody should hold their breath that either of these pieces of legislation will pass. Congress is tightly divided and it is proving very difficult to pass overwhelmingly bipartisan legislation like the defense bill that funds our military. There is almost no chance that our Congress will come together to pass these bills. Furthermore, the President and Congress have other priorities that they are spending their time and energy on. No matter how popular these bills are and no matter how many people they will help, nobody should expect both parties to come together and make them law. 

Final Thoughts

These pieces of legislation would go a long way toward making it easier for first-time homebuyers to stop renting and become homeowners. However, even without them it is still more than possible to become a homeowner. With FHA loans and downpayment assistance programs, becoming a homeowner is more realistic than most people realize. If you would like to buy a house, but do not know where to begin, contact us. The team at Peoples Choice Mortgage will give you a complimentary mortgage qualifier to see where you stand. From there, we can come up with a plan to make your dream of becoming a homeowner a reality.