More help could be coming for first-time homebuyers
Fve U.S. senators just introduced a bill that could help families of modest means build their wealth more quickly through homeownership.
The Low-Income First-Time Homebuyer (LIFT) Act is currently only a bill. But if it’s passed, it could provide a brand new loan program with cheaper payments and a shorter term.
This could provide some much-needed relief for home buyers facing an uphill battle in today’s market.
If you’re planning to buy a home in the coming months or year, here’s what you should know.
What is the Low-Income First-Time Homebuyer Act?
If passed, the LIFT Act will allow certain Americans to accelerate their home-buying plans and start building wealth sooner.
It does that by offering 20-year, fixed-rate mortgages that have roughly the same monthly payments as a 30-year mortgage.
That means you’d pay off your home faster — but without the higher monthly payments that typically accompany a shorter-term loan.
Eligible LIFT homeowners would build wealth at twice the rate of someone with a 30-year loan.
Most importantly, eligible borrowers would be paying interest over only 20 years. So LIFT Act mortgages would end up being much less costly than 30-year mortgages in the long run.
Another benefit? LIFT homeowners would build wealth at twice the rate of someone with a 30-year loan.
In other words, their home equity (the portion of your home’s value you own outright) should rise twice as quickly. This would help home buyers build tappable 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.
Those subsidies would be provided by the U.S. Treasury and Ginnie Mae. Ginnie explains that it is the “principal financing arm for government mortgage loans.”
The program will be administered by the U.S. Department of Housing and Urban Development (HUD).
Who would qualify for the new program?
The broad qualifying criteria for low-income first-time homebuyer (LIFT) mortgages are there in the name. You must:
- Be a first-time buyer
- Have a household income that’s no greater than 120% of the area median income (AMI) where you’re going to buy a home. Don’t know how much that is? Use this lookup tool
However, there’s a third requirement that could complicate things.
To qualify, you’d also need to be a first-generation homeowner in your family. It’s fine if your sibling(s) own or owned their own home(s). But if your parents have ever owned a home, that might bar you from the program.
It’s so far unclear how far that first-generation rule goes back. Might it include grandparents? Maybe. But it would seem unreasonable to expect anyone to show that ancestors previous to those never owned a home.
The LIFT program could help bridge the homeownership gap
Clearly, it would be illegal to racially discriminate under the proposed LIFT program. And it will be open to all who qualify.
However, the five senators who sponsored the bill intend it to narrow the current disparities in wealth between white people and those of color. One of them, U.S. Sen. Mark R. Warner (D-VA) explained in a statement:
“The number one way that middle-class Americans build wealth is through homeownership, an opportunity that due to racism and structural inequality has been denied to too many families of color.
“Today, Black families in this country have an average net worth just one-tenth the size of their white counterparts. The LIFT Act will help close the racial wealth gap by allowing qualified homebuyers to build equity — and wealth — at twice the rate of a conventional 30-year mortgage.”
What’s the current status of the Low-Income First-Time Homebuyer Act?
The LIFT Act is currently only a bill. And it may well face opposition on Capitol Hill.
Meanwhile, other bills proposing first-generation home buyer grants and tax credits are competing with this one for attention.
So it’s far from certain that the LIFT Act will become law. And, even if it does, it will likely be many months before the program is up and running.
Note that other bills are currently called “LIFT Act.” So don’t get excited if you see a headline saying “the” LIFT Act has passed. Read the story to make sure it’s the right one.
If you’re looking to buy a house in the immediate future, you won’t want to wait on the LIFT Act to pass.
Luckily, there are plenty of other options for low-income, first-time home buyers already on the market. Below are a few of the best.
Current options for first-time homebuyers
First-time buyers with limited means can already buy a home using one of the following five mortgage programs. Each offers affordable, 30-year, fixed-rate mortgages:
- Conventional 97 — 3% down payment and a 620 minimum credit score. From Freddie Mac or Fannie Mae
- Fannie Mae HomeReady — The Fannie Mae HomeReady loan is specifically designed for lower-income home buyers. It lets you use the income of additional, non-borrower household members to qualify. This can be a huge help if you have limited cash flow
- FHA loan — 3.5% down and a 580 minimum credit score. Backed by the Federal Housing Administration
- VA loan — Only for veterans, active-duty service members, reservists and National Guard. Zero down payment required. Minimum credit scores vary by lender but often 620. Backed by the Department of Veterans Affairs
- USDA loan — Zero down payment required. Credit score requirements vary by lender but often 640. You must be buying in a designated rural area, but those are surprisingly broad and include some suburbs. Backed by the U.S. Department of Agriculture
Each of those has pros and cons. The right one for you will depend on your personal circumstance. So click the links included in the list to learn more!
Don’t forget down payment assistance
Whatever you do, don’t forget the thousands of down payment assistance programs nationwide. All states and many cities and counties have at least one.
These exist largely to provide cash assistance to help low-income first-time homebuyers bridge the gap between their savings and their down payment and closing costs needs.
That help may come in the form of a grant (no repayment ever), a loan that’s forgiven after a few years, or a loan that you repay in parallel with your main mortgage.
Check your home buying eligiiblity
If it passes, the LIFT Act could provide a great way for lower-income families to become homeowners. But the Act is currently only a bill — and there’s no guarantee it’ll pass.
If you’re 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 grants, many home buyers can already find an affordable path to homeownership.