New mortgage loan offered for low-income first-time home buyers

More help could come for first-time homebuyers

Five US senators have just tabled a bill that could help low-income families build wealth more quickly through home ownership.

The Low Income First-Time Buyers Act (LIFT) is currently only a bill. But if passed, it could provide a whole new loan program with cheaper payments and shorter duration.

This could provide much needed relief to homebuyers 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 need to know.

Check your eligibility to buy a home (October 4, 2021)

What is the Low Income First-Time Buyers Act?

If passed, the LIFT Act will allow some Americans to speed up their home buying plans and start building wealth sooner.

It does this by offering 20 year fixed rate mortgages that have roughly the same monthly payments as a 30 year mortgage.

This means that you would pay off your home faster, but without the higher monthly payments that usually come with a shorter term loan.

Eligible LIFT owners would accumulate wealth at a rate twice that of someone with a 30-year loan.

More importantly, eligible borrowers would pay interest over just 20 years. Thus, LIFT Act mortgages would end up being a lot less expensive than 30-year long-term mortgages.

Another advantage? LIFT owners would accumulate wealth at a rate twice that of someone with a 30-year loan.

In other words, their home equity (the part of your home’s value that you own) should grow twice as fast. It would help homebuyers build exploitable wealth much faster than normal.

How the LIFT Act would work

The LIFT Act would be a government subsidized mortgage program. The grants will help bridge the gap between the normal monthly payments for a 30-year loan and those for a 20-year LIFT mortgage.

These grants would be provided by the US Treasury and Ginnie Mae. Ginnie explains that this is the “main branch of government mortgage financing.”

The program will be administered by the US Department of Housing and Urban Development (HUD).

Who would be eligible for the new program?

The general eligibility criteria for low income mortgage loans for first time home buyers (LIFT) are there in the name. You have to:

  1. Be a first-time buyer
  2. Have a household income that does not exceed 120% of the median income for the area (MAI) where you are going to buy a house. Don’t you know how much is? Use this research tool

However, there is a third requirement that could complicate matters.

To be eligible, you must also be a first generation homeowner in your family. It’s good if your siblings own or owned their own home. But if your parents have owned a home in the past, this could exclude you from the program.

We do not yet know how far this first generation rule goes. Could this include grandparents? May be. But it would seem unreasonable to expect anyone to show that ancestors before these never owned a home.

LIFT program could help bridge the homeownership gap

Obviously, it would be illegal to racially discriminate under the proposed LIFT program. And it will be open to anyone who qualifies.

However, the five senators who sponsored the bill intend to reduce the current disparities in wealth between whites and people of color. One of them, US Senator Mark R. Warner (D-VA) explained in a declaration:

“The primary way middle-class Americans create 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 barely a tenth the size of their white counterparts. The LIFT law will help close the racial wealth gap by allowing skilled homebuyers to build equity – and wealth – at twice the rate on a conventional 30-year mortgage. ”

What is the current status of the Low Income First-Time Home Buyers Act?

The LIFT Act is currently only a bill. And he may well face opposition on Capitol Hill.

Meanwhile, other bills offering first-generation homebuyers subsidies and tax credits are competing with this one for attention.

It is therefore far from certain that the LIFT Act will become law. And, even if it does, it will likely take several months for the program to be operational.

Note that other bills are currently called the “LIFT Act”. So don’t get upset if you see a headline that says “the” LIFT Act has been passed. Read the story to make sure it’s the right one.

If you’re looking to buy a home in the immediate future, you won’t want to wait for LIFT to pass.

Fortunately, there are already many other options for low-income first-time homebuyers on the market. Below are some of the best.

Current Options for First-Time Home Buyers

First-time buyers with limited means can already purchase a home using one of the following five mortgage programs. Each offers affordable 30-year fixed rate mortgages:

  • Conventional 97 – Down payment of 3% and minimum credit score of 620. From Freddie Mac or Fannie Mae
  • Fannie Mae HomeReady – The Fannie Mae HomeReady loan is specially designed for low income home buyers. It allows you to use the income of additional non-borrowing household members to qualify. This can be of great help if you have limited cash flow
  • FHA loan – 3.5% drop and a minimum credit score of 580. Supported by the Federal Housing Administration
  • VA loan – Only for veterans, active duty military, reservists and the National Guard. No deposit required. Minimum credit scores vary by lender, but are often 620. Supported by the Department of Veterans Affairs
  • USDA loan – No deposit required. Credit score requirements vary by lender, but often 640. You must buy in a designated rural area, but these are surprisingly broad and include some suburbs. Supported by the US Department of Agriculture

Each of these has advantages and disadvantages. Which one is right for you will depend on your personal situation. So click on the links included in the list to find out more!

Don’t forget the 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 in large part 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.

This help can take the form of a grant (no repayment ever), a loan canceled after a few years, or a loan that you repay alongside your primary mortgage.

Check your eligibility to buy a home

If passed, the LIFT Act could be a great way for low-income families to become homeowners. But the law is currently just a bill – and there is no guarantee that it will be passed.

If you’re already looking to buy a home, consider one of the low-down or no-down loan programs already on the market.

Between existing loan programs and down payment assistance grants, many homebuyers can already find an affordable path to homeownership.

Check your new rate (October 4, 2021)

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