Bill Breakdown: Down Payment Toward Equity Act

Financial barriers are among the most significant contributing factors to the rate gap. High rent and stagnant wage growth have made it incredibly difficult for millions of Americans – particularly people of color and low-income households – to save for a down payment or closing costs, denying them access to the stability and financial freedom that comes with owning a home.

According to Harvard’s Joint Center for Housing Studies, Black, Hispanic, and Native Americans are less likely to own a home in each state in the US. In the second quarter of 2022, the homeownership rate for white households was 75% compared to 45% for black households, 48% for Hispanic households, and 57% for other people of color, including Native Americans, Asian Americans, and Native Hawaiians & Pacific Islanders.

To begin addressing these inequities, the federal government set aside $100 billion of its 2024 budget for a homebuyer cash grant program. The Down Payment Toward Equity Act aims to start closing the homeownership and wealth gaps by boosting homeownership among low- and moderate-income households, people of color, and first-time, first-generation buyers. When combined with the affordability and efficiency of factory building, the Down Payment Toward Equity Act is a transformational bill that can further expedite the journey to homeownership.

What is the Down Payment Toward Equity Act of 2023?

The Down Payment Toward Equity Act is a pending federal grant program that provides up to $25,000 in financial assistance to first-time, first-generation homebuyers in low- to moderate-income homes to help purchase their first home. Homebuyers can use the funds toward a down payment, closing costs, or other qualified home purchase expenses.

All homebuyers who qualify for the program will receive $20,000, with socially and economically disadvantaged homebuyers receiving an additional $5,000 for a total of $25,000. Studies show that $25,000 in down payment assistance could help 1.1 million income-ready black and Hispanic renter households to become homeowners. Because the program is a grant, homebuyers won’t have to repay the money they receive as long as they live in the purchased home for at least five years.

Mortgage lenders will complete the required paperwork on behalf of interested homebuyers and secure the funds by the closing date.

Which buyers and homes qualify?

At the time of publishing, the requirements to qualify for the Down Payment Toward Equity Act are:

  • Must be a first-time homebuyer, as defined by the Department of Housing and Urban Development (HUD)
  • Must be a first-generation homebuyer
  • Make 120% or lower of the median annual income for the home’s location. The limit increases to 180% for high-cost areas
  • Must purchase an eligible residence
  • Must use an approved mortgage loan
  • Must complete housing counseling

Let’s dive into each of those requirements a bit more.

Must be a First-time Homebuyer
HUD defines a first-time homebuyer as an individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the new property. This requirement also applies to co-borrowers and spouses or domestic partners, whether they are co-borrowers or not.

Must be a First-Generation Homebuyer
This is an individual whose parents or guardians have not owned a home in the last three years. This requirement also applies to co-borrowers and spouses or domestic partners, whether they are co-borrowers or not. Any individual who was ever placed in foster care and meets the income requirements is considered an eligible first-generation homebuyer.

Must Meet Income Requirements
The potential homebuyers can’t earn more than 20% over the annual median income (AMI) for the area where the home is located. For example, the median income for the Tampa/St. Petersburg area is $89,400. This means a household’s annual income must not exceed $107,280 to qualify for this program. The limit is increased to 80% over the AMI for high-cost areas. Use this lookup tool to find the AMI for your area.

Must Purchase an Eligible Residence
An eligible residence is a 1 – 4-unit dwelling, including cooperatives, condominiums, and manufactured homes, that will be the homebuyer’s primary residence.

Must Use an Approved Mortgage Loan
The home purchase must be financed with a Freddie Mac, Fannie Mae, FHA, VA, or USDA-backed mortgage loan. These government mortgage agencies allow for down payments as low as 0%, and up to 3.5% of the home’s purchase price.

Must Complete Homebuyer Counseling
The homebuyer must complete housing counseling with an approved agency prior to a loan application. Fannie Mae’s HomeView® course and Freddie Mac’s CreditSmart® Homebuyer U satisfies this requirement. Additionally, you can find HUD-certified housing counselors here.

What’s the Current Status of the Bill?

The Down Payment Toward Equity Act of 2023 was introduced in the House of Representatives in June 2023 and is currently making its way through Congress. Future progress updates about the Act will be added to the top of this post, but you can also follow its progress here.

Until the bill passes, we encourage interested homebuyers to do what they can to prepare for the homebuying process. This includes lowering your debt-to-income (DTI) ratio, working on your credit, or saving for home maintenance. A housing counselor can help guide you and provide additional preparation tips.

The Down Payment Toward Equity Act can potentially put homeownership within reach of more Americans by providing up to $25,000 in down payment assistance – an amount that can help more than one million households overcome that first financial hurdle. However, its impact is limited if those homebuyers do not have affordable housing stock to purchase from. When used to buy a qualifying manufactured home, homebuyers can compound their savings and reap the benefits of homeownership even faster.