The list of bills seeking to increase first-time homeownership and narrow the racial housing gap keeps growing — but the latest addition offers a new approach.
Unlike its predecessors, the Low-Income First Time Homebuyers Act (LIFT act) of 2021 isn’t focused on down payment assistance. Instead, it would create a 20-year, low interest rate mortgage program that would help homeowners build equity at twice the rate of a 30-year mortgage, according to the bill summary.
The bill is just a proposal at this point. But if signed into law, it could give first-generation homebuyers a powerful tool with which to enter the housing market.
What's in this Article?
What is the LIFT Act of 2021?
A bill summary states that the purpose of the LIFT Act is to provide “first-time, first generation homebuyers with a wealth-building mortgage.”
If passed by Congress and signed into law, the LIFT Act would create a new loan program through the Department of Housing and Urban Development (HUD) in partnership with the Department of the Treasury. The loan program would sponsor fixed-rate 20-year mortgages with interest rates and origination fees subsidized by the Treasury.
The end result would be a 20-year mortgage with a monthly payment similar to a 30-year FHA loan. By reducing the loan term and maintaining payment amounts, homeowners would build equity and, by extension, wealth at twice the rate of a conventional 30-year mortgage.
“For too long, too many of our neighbors have been excluded from our nation’s housing market, unable to build equity and security after buying and moving into their first home,” said Sen. Reverend Raphael Warnock. “Home equity accumulation is one of the best ways to build generational wealth for hardworking families in Georgia and across the nation, and to close the racial wealth gap.”
The bill is sponsored by Senators Mark Warner (D-Va.), Tim Kaine (D-Va.), Chris Van Hollen (D-Md.), Rev. Raphael Warnock, (D-Ga.), and Jon Ossoff (D-Ga.), all of whom — with the exception of Kaine — sit on the Senate Committee of Banking, Housing and Urban Affairs.
If enacted, the LIFT program would only be available to first-time, first-generation homebuyers with incomes equal or less than 120% of their area median income.
The bill uses the definition of first-time homebuyer from the National Affordable Housing Act. That means first-time homebuyers are individuals and spouses that have not owned a home in the three years prior to using the LIFT program to purchase a home.
First-generation homebuyer is defined as an individual whose parents or legal guardians do not currently own a home, or did not at the time of their death. For married couples and domestic partners, the first-generation homebuyers’ spouse cannot have owned a home in the previous three years.
First-generation homebuyers also include homebuyers who have been in foster or institutional care, so long as their spouse has not owned a home in the last three years.
Area median income can be based either on the purchase area of the home or the current residence of the homebuyer.
If the property is in a designated high-cost area, 140% of the local median income may be used.
A bill summary provides the following example for how the LIFT Act would help qualified homeowners build equity twice as fast.
Purchase price: $210,000
Down payment: $10,000
Loan amount: $200,000
|30-year FHA-insured mortgage||20-year FHA-insured LIFT program mortgage|
|Up-front insurance fee||1.75%, folded into mortgage||4%, folded into mortgage|
|Annual insurance fee||.85%||–|
The monthly payment for a LIFT program loan is slightly higher, but comparable to a 30-year FHA loan. But by paying less interest, LIFT program borrowers build home equity faster.
Equity built over time
|Years of payments||30-year loan pay-down||20-year loan pay-down|
In this example, LIFT program borrowers have 22% equity in their home after 5 years. Meanwhile 30-year borrowers have just over 11%.
The racial homeownership gap between Black and white Americans reached 30.4% in the final quarter of 2020, exceeding levels during the Jim Crow era. In 2021, several bills have been introduced to close this gap, most of which focus on down payment assistance. These include:
- The First-Time Homebuyer Act of 2021 — a $15,000 tax credit
- The Down Payment Toward Equity Act of 2021 — up to $25,000 in down payment assistance
- The Decent, Affordable, Safe Housing (DASH) for All Act — a $15,000 tax credit
The LIFT Act of 2021 is the first to target loan terms instead of down payment assistance. This strategy is earning praise from housing authorities.
“The LIFT Act would be a groundbreaking new approach to help close the nation’s significant and troubling shortfall in homeownership among people of color and the associated substantial wealth racial gap,” said Chris Herbert, Managing Director, Harvard Joint Center for Housing Studies. “The proposed approach is also highly cost effective by leveraging federal subsidies to enable homeowners to build wealth over time more quickly and effectively.”
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.