Three years after the Downpayment Toward Equity Act failed, Congress is taking another swipe at offering down payment assistance for millions of first-time homebuyers.
Jeff Merkley
Senators Jeff Merkley (D-OR) and Ron Wyden (D-OR) introduced the Homeownership Promise Act on Tuesday, which, if passed, would offer buyers $5 for every dollar they save toward a down payment, up to $50,000. The U.S. Department of Housing and Urban Development would distribute the funds, which would only be available to buyers who:
- complete HUD-approved housing counseling,
- open a Homeownership Promise savings account with any Community Development Financial Institution,
- are looking to purchase a primary residence that doesn’t exceed the median single-family purchase price in their area.
The bill doesn’t include an income limitation — opening the door for hundreds of thousands of first-time homebuyers to receive a needed financial boost to handle rising mortgage rates and existing median home prices.
“Working families should be able to afford a decent home in a decent community,” Merkley said in a press release. “For millions of young Americans, homeownership remains further out of reach than ever before, keeping them from establishing the foundation that has enabled middle-class families to build equity for generations.”
“My new Homeownership Promise Act would restore the promise of homeownership — one of the foundations that working families need to thrive — by allowing all Americans to save for a home and live that piece of the American Dream,” he added.
Merkley’s proposition comes as the average down payment hit a five-year low, according to Realtor.com’s second quarter Down Payment Report.
Ron Wyden
The typical homebuyer offered more during the second quarter ($27,100) than the first ($25,000); however, that’s still a 9.2 percent year-over-year decrease in dollar terms and 0.6 percentage points as a share of purchase price. The portal said rising mortgage rates, which soared past 7 percent on Tuesday, mean down payments do little to reduce the monthly mortgage.
Even though the typical down payment share was 1.4 percentage points higher than in August 2021, the estimated monthly principal-and-interest payment rose 74 percent over five years, to $2,376, the report explained. Offering a larger down payment, closer to 14 percent of the purchase price, reduced the monthly mortgage by only $39.
Although buyers would appreciate $50,000 in assistance, Ken Johnson, a professor of finance and the Walker Chair of Real Estate at the University of Mississippi, told Realtor.com that Merkley and Wyden face a Sisyphean task in passing the Act.
Johnson said Republican-dominated Congress is unlikely to support federal assistance for homebuyers. Furthermore, he argued that down payment assistance is a band-aid for the bigger problem — weak supply.
“The real symptom of what’s going on is that we’re short in supply. We’re dangerously short in supply. We just cannot build homes fast enough,” he said. “You can’t make it easier for people to buy homes and offer easier credit to buy homes when you have the housing market so overpriced.”
