Home buying is a major expense, with many first-time buyers waiting until they’re 32 to buy a home. A lot of would-be buyers had to put their dreams of ownership on hold when the Covid-19 pandemic hit. Some of these individuals had to dip into their savings and use money put aside for a down payment to pay their bills.
Lawmaker Rep. Sean Maloney (NY-D) has introduced a bill that has received praise from the National Association of Realtors (NAR): First Time Homebuyer Pandemic Savings Act.
What is the First Time Homebuyer Pandemic Savings Act?
The Act is an attempt to keep the housing market afloat while also helping those that were budgeting for a home to still move forward with their plans. The Act allows you to:
Withdraw retirement account funds to use toward your home purchase
Utilize up to $25,000 from retirement distributions – penalty-free and tax-exempt
The funds must be put towards the down payment of a person’s first home to qualify. The clause would fall under coronavirus-related distributions and would be in place until December 31, 2021.
First-time homebuyers make up around 33% of home sales per year.
Lawmakers wanting to kick-start the economy and help first-time buyers are backing the bill. Rep Maloney states that this is an innovative way to help the economy while allowing young families to move a step closer to home buying.
NAR is calling on members of the U.S. House of Representatives to sponsor the bill.
Who Qualifies as a First Time Buyer?
You might think that first time home buying can only occur one time, but the United States Department of Housing and Urban Development (HUD) defines a first-time buyer as someone who:
Has not owned a principal residence for at least three years
Has a spouse who has never owned a home
Is a single parent who only owned a home with a spouse
There are also some exemptions, such as a person who owned a home that was not in compliance with local and state building codes (if the building was too costly to bring to compliance).
Another exemption would be a person who has only owned a residence that was not attached to a permanent foundation.
Down Payment for a First-Time Buyer
The Act allows you to use up to $25,000 from your retirement accounts, without penalty, to put towards a home. First-time buyers have access to special loan programs that will allow them to put down a lower down payment.
A lower down payment, under 20%, will result in you having to pay PMI insurance, so this is something you need to consider.
You'll need to meet credit score requirements, but the following options are often available to owners:
3% down payment for a conventional loan with a debt-to-income ratio of under 50%.
3.5% for FHA loans and lower credit score requirements compared to conventional loans.
Of course, you may be eligible for a USDA or VA loan, too. You'll need to make sure that you’re budgeting accordingly for each loan type requirement. With the First Time Homebuyer Pandemic Savings Act, it’s possible to dip into retirement savings, without penalty, to realize your dream of home ownership.