President Joe Biden recently proposed a $15,000 down payment assistance tax credit for first-time buyers, making homeownership a more affordable and achievable option for 9.3 million renters. According to Zillow, this $15,000 tax credit would be enough to cover the minimum down payment in a majority of the metro areas across the country. For almost 30% of renters, this tax credit could be the assistance needed to jump the final barrier towards homeownership.
Currently, providing the initial down payment on a new home is the biggest struggle potential homeowners are facing. Coming up with anywhere from 3-10% of a total home is hard for many renters, especially in the current market where average homes are rapidly rising in price.
A similar credit was approved by Congress during the Great Recession, but unlike these past credits, this current plan offers an advanceable tax credit to be used at the time of purchase. Because it has become a burden for potential buyers to save up money for a down payment due to the sharp upturn in median housing prices, this credit could jumpstart new home sales for many.
The new $15,000 tax credit is based on the fact that a majority of renters in the United States can already afford the monthly mortgage rate on a home in their area. With a 3.5% down payment and interest rates hovering around 3%, most renters would be able to afford the monthly mortgage on a 30-year, fixed-rate loan without having to spend more than 30% of their income.
Since the start of the COVID-19 (coronavirus) pandemic, there has been a significant increase in the need for housing security, meaning renters especially are maintaining current living situations to avoid facing housing insecurity. However, even before the pandemic, renters still faced a housing affordability disadvantage. On average, renters have been spending more of their monthly income on rent than homeowners are spending on mortgages.
This new tax credit not only offers the possibility for renters to save money on monthly spending and transition into homeownership but also to accumulate the wealth advantages of owning a home in the United States. In addition to this tax credit, renters can also take advantage of record-low interest rates.
President Biden’s newly proposed $15,000 down payment assistance tax credit could be a big step towards helping over 9 million renters across the country become homeowners. To read more about the local market on Atlanta Real Estate Forum, click here.