One of President Joe Biden’s primary campaign promises was to do whatever it took to make it more affordable for first-time buyers to purchase homes. To a significant degree, he’s been striving to keep those promises. Here’s what you should know about how the Biden Administration plans to make homeownership more affordable for Americans during the housing crisis.
One of the newest developments in housing affordability came recently when the White House announced it was slashing the interest rate on Federal Housing Administration mortgage insurance products. The FHA’s program of regulating and insuring loans for first-time and low-income buyers makes accessibility to prospective buyers with lower down payments possible but requires new homeowners to take out mortgage insurance to qualify. This increases the cost of homeownership by a commensurate amount, but it’s often the only way that lower-income Americans can afford to qualify for a mortgage.
The good news is that starting March 20th, the FHA is dropping interest rates on their mortgage insurance by a sizable margin. Current rates stand at 0.85 percent annually, but the new rate, when it goes into effect, will drop to just 0.55 percent. This is a major benefit for anyone taking advantage of FHA programs to make homeownership more accessible, especially while the real estate market is in such a volatile place after nearly 12 months of near-constant base interest rate hikes that have driven up the cost of lending across the board.
Speaking of rampant interest rates, the US government has responded - quite uncharacteristically swiftly - to these ballooning interest rates. With the US Federal Reserve seeking to curb inflation by raising the base rate, borrowers have seen the costs of lending of all types skyrocket as banks and other lending institutions scramble to keep up. This has made it much more difficult to qualify for a mortgage, especially for first-time homebuyers of lower incomes.
However, thanks to the Federal Housing Finance Agency’s First Time Home Buyer Mortgage Rate Discount, which went into effect in December of 2022, now any first-time home buyer can access interest rate discounts of up to 1.75 percentage points. Qualifying first-time homeowners must meet certain income requirements, be able to move into the new home within 60 days, and must finance with a traditional mortgage in order to qualify, but this program is certainly a breath of fresh air for anyone who’s been watching interest rates go through the roof lately.
Yet these aren’t the only ways the Biden Administration has been pushing to make homeownership more affordable. Long-term plans for what the government is referring to as the Downpayment Toward Equity Act has been in the planning stages since 2021. A major piece of legislation, this bill has the potential to be revolutionary for low-income prospective homebuyers thanks to how it’s structured; eligible first-time home buyers would receive up to $25,000 cash for a down payment on a home, help with their mortgage closing costs, reductions in their interest rate, and for other expenses related to home purchases.
The bad news, however, is that this bill is still in legislative limbo. While hearings in both the Senate and the House have been ongoing through 2022, there has been little to no movement on voting it into law during the 2023 legislative session so far. However, this program would be a highly popular one among low-income Americans looking for ways to make homeownership more affordable. With any luck, this program will transition from being just a good idea to a grant that, if homebuyers qualify for it, will make a profound difference in the lives of countless new homeowners.
While it’s easy to look at campaign promises with more than a hefty grain of salt, it does seem that President Biden has been working to do his part in fulfilling those promises, at least when it comes to making home ownership more affordable for lower-income Americans. No matter what you may think of the Biden administration and its performance in other areas, this is clear evidence that the desire to improve the ability of Americans to indeed become homeowners for the first time. Whether these efforts will prove as useful as they could be - such as if the Downpayment Toward Equity Act becomes signed into law - is up in the air, however.
Meanwhile, the state of the US housing markets and the overall economy for the United States is still very much up in the air as well. While the Fed has indicated it will be slowing down on its highly aggressive base rate hikes, there’s no telling when they will come to a stop. As a result, many housing experts predict that interest rates will continue to remain high through 2023, though they are likely to decline from current highs slightly.
This isn’t an ideal situation by any measure of the imagination. However, it does showcase just how badly lower-income Americans looking to become first-time homebuyers need as much help as they can in making homeownership more affordable. Between the reduction in FHA mortgage insurance rates, the HFA’s mortgage rate discount, and - hopefully - the Downpayment Toward Equity Act - there’s certainly the possibility that first-time homebuyers in the US might see some substantial help coming their way.