A pair of U.S. senators are pushing a bill designed to reduce one of the most significant obstacles to home ownership: prohibitively expensive down payments.
The bipartisan-sponsored bill, called the American Dream Down Payment Act, would allow states to offer first-time homebuyers a savings account, which comes with a tax benefit as they save up to 20% for a down payment.
“Down payments are the biggest barrier to homeownership for first-time homebuyers, especially among low-income and minority Americans, and make it harder to build generational wealth that is often tied to home-ownership,” one of the sponsors, Sen. Doug Jones (AL), said in a statement. “Our legislation would provide a new path to help make the dream of buying a home a reality by making it easier to save money for down payments and other housing-related costs.”
If passed, the legislation would allow states to establish American Dream downpayment accounts, which would be managed similarly to the 529 plans that help people save for higher education expenses.
Though contributions themselves are not tax deductible, the funds can be withdrawn without any federal tax penalty. The American Dream Down Payment Act will also allow the recipient to use the account to pay for closing costs. Families and friends are permitted to contribute to the savings accounts.
The federal bill is similar to one signed into law by President George W. Bush in 2003. That legislation, originally sponsored by Sherrod Brown (D-OH), ended in 2008. Since then, individual states have largely run similar down payment assistance programs.
Several of the largest housing trade groups in the country said they support the latest legislation.
National Association of Realtors President Vince Malta pointed to how, despite record-low interest rates, many would-be home buyers can’t come up with funds for a downpayment.
The National Association of Real Estate Brokers noted that the program could help Black families overcome the challenge of low homeownership rates.
“This Act serves as a tangible springboard to increase Black homeownership and real wealth-building prospects,” said Donnell Williams, the president of NAREB.
Democratic presidential candidate Joe Biden recently proposed a $15,000 tax credit to help first-time homebuyers purchase a property.