$25,000 PLUS $15,000 .. Leading to More Demand

Winston Churchill

More Money Stoking the Demand Fire

It’s a thing.. like a real thing..  There are currently TWO separate homebuyer programs being considered in Washington.  Both want to help homebuyers…but the approach for each is different.  The Downpayment Towards Equity Act of 2021 plans on giving away $25,000, the First Time Homebuyer Bill wants to reduce your taxes by $15,000.  These funds will be great for those who need it.. but do our sellers need more buyers right now?  Just askin!

Let’s consider each…

The Downpayment Toward Equity Act of 2021 bill was introduced 2 weeks ago and focuses on giving socially and economically disadvantaged buyers money for downpayment and closing costs.  What’s so incredibly different about this one is that the money will be at the closing table for qualified buyers… but how?  The details and logistics have not been ironed out yet; but my mind goes back to the Neighborhood Gold days.. remember those?  That was a $15,000 grant that lenders had to sign up for to give away.  It was logistically administered by Wells Fargo and funded through a non-profit.  So.. there is precedence. Let’s get back to the details; because this is where it gets interesting.

In order to qualify, you have to meet the criteria below.  If you’d like to read the Act yourself.. you should.  It’s only 3 pages long and linked here.  To qualify:

  • You need to be a first time home buyer, meaning .. you have not owned in the last 3 years.
  • ​You have to be a first generational home buyer.  Now don’t get me wrong.. I love this.  I love helping buyers who are changing the trajectory of their families financial path!  But how are they going to prove this?  So.. your parents can never have owned a home in your lifetime OR if they owned a home they had to have lost in a foreclosure, deed in lieu, or short sale.  So riddle me this batman… I believe some people lost their homes in 2008 for circumstances outside their control.  I also believe some people lost their homes in any year due to an inability to manage their finances or curb their spending. That second group’s children qualify… I find that unfair.  P.s. if you were raised in foster care, you qualify.
  • You need to make less than 120% of the Area Median Income (AMI) 180% of the Area Median Income for high cost areas.  Most of the Denver area is a high cost area and our AMI is $100,000.  Boulder is $115,000.  You can see where your county lands by clicking Fannie Mae’s AMI map below.  So if you make $180,000 in Denver you are considered low- to moderate- income for this Act.  Keep in mind, most income based programs like HomeReady and HomePossible as well as down payment assistance programs limit the income to 80% of the AMI.
  • If you are both economically and socially disadvantaged the grant amount goes up from $20,000 to $25,000.  Per the Act, you need to be Black, Hispanic, Asian American, Native American, or any combination thereof.  I don’t disagree.. I just question how will this be proven?  Is it self claimed?  What about percentages.

There are holes to be filled in designing the execution of such an Act.  And this is a lot of money creating more demand in an already hot market, which will push up prices further, making it harder for these same first time homebuyers to get in.  It’s a viscous circle.

Now the First Time Homebuyer Bill.  This bill resembles the 2008 $7,500 tax credit or the 2009 $8,000 tax credit.  This one shows up in April, not at the closing table and can be combined with the Downpayment Towards Equity Act of 2021.  This bill is targeted to low and middle income earners.  The qualified buyer gets the lesser of 10% of the purchase price or $15,000 if:

  • They make 160% of the Average Median Income.  That’s $160,000 in Denver.  low? moderate?
  • The prospect home is no more than 110% of the area median purchase price.  How will they show this, by county? by date? who will keep record of that?

Borrowers will also have to claim this home as their primary residence for 4 years or have to pay a prorated amount back. And, the credit is good for any home purchased after December 31st, 2020.

Now don’t get me wrong… I want to help more buyers get into the market.  I am a HUGE fan of building wealth through real estate.  I just question.. is there a better way?  This feels like it’s putting a band aid on the wrong arm.

“There are so many cash offers!”  Ah…maybe not.

Multiple times a day I have a conversation with either an agent or a buyer where the topic quickly turns to the massive amount of homes that are being bought with cash offers.  As I was preparing for the Market Update with Megan Aller this week, I wanted to highlight this “massive” phenomenon so we can prepare our clients to  better position themselves for a winning offer when up against all these cash buyers.

​Imagine my surprise when I compared the data from March 2016 to March 2021 as to the percentage of cash offers done during both time periods… a 1% difference is not massive.  In March 2016 that equates to 16% of 4572 homes sold or 731 homes.  In 2021 it’s 17% of 4889 or 831 homes.  So with just shy of 5,000 homes sold, 100 more went to a cash offer.  It just tells me to not give up.  That buyers who are unable to pay cash, still have an incredible chance of getting under contract.. in fact a 83% chance.  It’s the FHA buyers that I feel the worst for.. their numbers were cut in half.

As interest rates so up, as the economy strengthens, as children go back to school and parents back to the offices, buyer demand will calm.  It will remain strong but not extreme. Buyers need to stay engaged and hopeful.  Now is not the time to give up and sign another lease.. not if you can help it!



Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients.  www.TheRuethTeam.Com.