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What You Need to Know About the Downpayment Toward Equity Act of 2021

There are a lot of factors you’ll need to consider when searching for a home to buy. One calculation is just how much you’re able to put down on the home. For those of you looking to buy, there may be some good news on the way. Lawmakers in Congress are trying to pass a bill that would provide tens of thousands of dollars to many first-time homebuyers. Our resident experts Aaron and Jennifer made a video about the Downpayment Toward Equity Act of 2021, which you can check out here. But if you’d rather read all the details about this potential boon to homebuyers, let’s dig in.

What Is the Downpayment Toward Equity Act of 2021?

The Downpayment Toward Equity Act of 2021 is a piece of proposed legislation that would provide homebuyers fitting certain criteria up to $25,000 to use on their down payments or to pay off other costs related to closing. The minimum amount you can get is $20,000, with the extra five grand added for those who meet additional criteria.

What Is the Goal of the Act?

The purpose behind providing these funds for homebuyers is not simply to put a little extra cash in the pockets of everyone looking to buy a home. It’s intended to assist potential homebuyers coming from disadvantaged backgrounds and communities. The Downpayment Toward Equity Act of 2021 is meant to help rectify that imbalance across the country. That’s why someone looking to qualify needs to fit some eligibility benchmarks.

How Do I Know if I’ll Qualify?

In order to qualify for the minimum of $20,000 homebuyers should:

  1. Be a first-time homebuyer. For the purposes of the act, this term does not mean someone who has never owned a home. As long as you have not owned one in the past three years, you count as a first-time homebuyer.
  2. Be a first-generation homeowner. Your parents cannot have owned a home. Or, if they did, they either lost it to foreclosure or do not own one now for another reason. If you’ve ever been in foster care, you also count as a first-generation homeowner under this act.
  3. Have yearly earnings below 120% of the median income (or below 180% in a high-cost area). In places like the Bay Area or other big cities in California, it’s pretty easy to meet this standard.
  4. Use a government-backed qualified mortgage to buy your house. Only those with qualified mortgages that follow Fannie Mae and Freddie Mac guidelines can benefit from the Downpayment Toward Equity Act.
  5. Buy the home as a primary residence. Investment properties would not be eligible for this grant.

In order to receive that additional $5,000, you must belong to a group or population that has faced racial or ethnic prejudice. People who have been systematically excluded from homeownership should see at least some overdue balancing of the scales if this act passes.

How Does the Grant Work?

The money you’d potentially receive via the Downpayment Toward Equity Act of 2021 is made directly available to the homebuyer at the time of closing. It’s not a tax credit or a loan you’d need to repay but is a government grant that, in most cases, doesn’t need to be repaid.

And while the name implies that it can be used exclusively for down payments, you can actually put it toward any costs that are part of buying your home. You can use it to cover closing fees, pay for a lower mortgage rate, or spread the cash around among the various costs of buying a home, down payment included.

Will I Have to Repay the Money?

Since this is a grant, the money doesn’t usually have to be repaid, but there is a situation where you would have to repay some or all of what you received: If you ended up selling the home within five years. In such cases, the amount that must be paid back decreases the longer you stay in the home. If, for example, you were to change residences during the fifth year, you’d have to pay back just 20% of the amount you received. If you sell and move in the very first year of homeownership, you’d have to pay back the entirety of the grant.

A Step Toward Equality and Homeownership

The Downpayment Toward Equity Act of 2021 is not yet law. But it is moving forward, so with a little luck—and maybe an email or two to your representative, if you’re looking to help it along—it may someday be very helpful to many people looking to buy a home in California. Given the diversity of our state and the number of high-cost areas, many Californians may be eligible to benefit from this act. 

If you have any questions about the Downpayment Toward Equity Act of 2021, reach out to us here or give us a call at 916-465-6639.

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