More help could come for first-time home buyers
Five US Senators have just tabled a bill that could help modest families build their wealth faster through home ownership.
The Low-Income First-Time Homebuyer (LIFT) Act is currently just a draft law. But if it passes, it could offer a brand new loan program with cheaper payments and a shorter term.
This could provide much-needed relief for home buyers facing an uphill battle in today's marketplace.
If you are planning on buying a home in the months or years to come, here are some things you should know.
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What is the Low Income Home Ownership Act?
If the LIFT bill is passed, it will allow certain Americans to expedite their home purchase plans and start wealth creation earlier.
It does this by offering 20-year fixed-rate mortgages that have roughly the same monthly payments as a 30-year mortgage.
That means you would pay off your home faster – but without the higher monthly payments that usually come with a shorter-term loan.
Eligible LIFT homeowners would accumulate twice as much wealth as someone on a 30 year loan.
Most importantly, Eligible Borrowers only pay interest for over 20 years. So LIFT Act mortgages would be much cheaper than 30 year mortgages in the long run.
Another advantage? LIFT homeowners would accumulate twice as much wealth as someone on a 30 year loan.
In other words, your home equity (the part of the value of your home that you directly own) should grow twice as fast. This would help home buyers build tangible wealth much faster than normal.
How the LIFT Act would work
The LIFT Act would be a government subsidized mortgage program. Subsidies will help bridge the gap between normal monthly payments on a 30-year loan and those on a 20-year LIFT mortgage.
These subsidies would be provided by the US Treasury Department and Ginnie Mae. Ginnie explains that it is the "main funding arm for government mortgage loans."
The program is sponsored by the U.S. Department of Housing and Urban Development (HUD) managed.
Who would qualify for the new program?
The broad qualification criteria for low-income first-time home purchase (LIFT) mortgages are included in the name. You need to:
Be a First Time Buyer Have a household income that is no more than 120% of the Median Income of the Area (AMI) in which you are going to buy a home. Don't you know how much that is? Use that Reference tool
However, there is a third requirement that could complicate things.
To qualify, you must also be a first generation homeowner in your family. It's okay for your siblings to own or own their own house. But if your parents ever owned a house, you could be excluded from the program.
It is not yet clear how far back this first generation rule goes. Can it be grandparents? Maybe. But it would be unreasonable to expect anyone that their ancestors never owned a home.
The LIFT program could help fill the home ownership gap
It would be clearly illegal to use racial discrimination under the proposed LIFT program. And it's open to anyone who qualifies.
However, the five senators who backed the bill intend to narrow the current wealth gap between whites and coloreds. One of them, US Senator Mark R. Warner (D-VA), stated in a statement:
“The primary way middle-class Americans build wealth is through home ownership, an opportunity that has been denied to many black families due to racism and structural inequality.
“Today, black families in this country have an average net worth a tenth the size of their white counterparts. The LIFT bill will help fill the racial wealth gap by allowing skilled homebuyers to build equity – and wealth – at twice the rate of a traditional 30-year mortgage. "
What is the current status of the low-income first-time home purchase law?
The LIFT law is currently just a draft law. And it can meet with resistance on Capitol Hill.
Meanwhile, other bills proposing grants for first generation homebuyers and tax breaks are competing for attention.
So it is far from certain that the LIFT law will become law. Even if it does, it will likely take many months for the program to run.
Note that other bills are currently being referred to as the "LIFT Act". So don't be upset if you see a headline saying that "the" LIFT bill has passed. Read the story to make sure it is the right one.
If you are looking to buy a home in the near future, you don't want to wait for the LIFT law to be passed.
Fortunately, there are already many other options in the market for low-income first-time home buyers. Below are some of the best.
Current options for first time home buyers
First time buyers with limited funds can use one of the following five mortgage programs to buy a home. Each offers affordable 30-year fixed-rate mortgages:
Conventional 97 – 3% deposit and a minimum of 620 credits. From Freddie Mac or Fannie MaeFannie Mae HomeReady – The Fannie Mae HomeReady Loan is specially designed for lower income home buyers. This allows you to use the income of additional household members who are not borrowers to qualify. This can be of great help when you have limited cash flowFHA loans – 3.5% less and a credit score of at least 580. Supported by the Federal Housing AdministrationVA loan – Only for veterans, active soldiers, reservists and the National Guard. Zero deposit required. The minimum credit score varies by lender, but is often 620. Supported by the Department of Veterans AffairsUSDA loan – No deposit required. Credit requirements vary by lender, but often 640. You will need to buy in a specific rural area, but these are surprisingly diverse and include some suburbs. Supported by the US Department of Agriculture
Each of these has advantages and disadvantages. Which one is right for you depends on your personal circumstances. So click on the links in the list to find out more!
Don't forget your deposit help
Whatever you do, don't forget about the thousands of deposit assistance programs across the country. All states and many cities and counties have at least one.
These are primarily used to support low-income first-time home buyers in cash to bridge the gap between their savings and their need for down payments and closing costs.
This help can come in the form of a grant (no repayment), a loan that comes out after a few years, or a loan that you pay back in parallel with your main mortgage.
Check your eligibility to buy a house
If passed, the LIFT Act could be a great way for lower-income families to become a homeowner. But the law is just a draft law right now – and there are no guarantees that it will get through.
If you are already looking to buy a home, consider one of the low and no down payment loan programs already on the market.
Between existing loan programs and down payment assistance, many homebuyers are already finding an affordable way to own their home.
Confirm your new plan (October 4, 2021)