March 2, 2022

Senate proposal seeks LIFT for lower-income buyers

If passed by Congress, a proposed new program could give first-time homeowners a LIFT.

It could help families of modest means build wealth more quickly through a unique first-time homeownership program.

If passed, the Low-Income First Timers (LIFT) Act would allow low-income Americans to start building wealth sooner with 20-year, fixed-rate mortgages.

The twist: They would be making the lower payments that come with a 30-year mortgage. Government subsidies would bridge the gap.

With interest spread over only 20 years, LIFT Act mortgages would end up being much less costly than 30-year mortgages in the long run.

Among all homebuyers, the monthly mortgage payment as a share of the median family income increased to 16.6% in the third quarter of 2021 (14.9% one year ago). For first-time buyers, the typical mortgage payment on a 10% down payment loan increased to 25.2% of the median family income. Affordability is generally defined as no more than 25% of income.

The main qualifications for LIFT mortgages are in the name. Borrowers must:

• Be first-time homebuyers.

• Earn no more than 120% of their area’s median income.

• Be a first-generation homeowner in your family.

The LIFT Act could also help close the wealth gap by allowing qualified homebuyers to build equity (the portion of a home’s value owned outright) and wealth at roughly twice the rate of a conventional 30-year mortgage. These homeowners would also gain the financial flexibility afforded by refinances and other home equity loans.

If it passes, the LIFT Act could provide a great way for lower-income families to become homeowners. It could also help close racial gaps in homeownership by providing a way for underserved communities to build generational wealth. But the Act is currently only a bill - and there’s no guarantee it will pass.

Between existing loan programs and down payment assistance grants, there are many other affordable paths to homeownership.

Bay Equity Home Loans can be your guide to information on many low- and no-down-payment loan programs already on the market, including home loans backed by federal, state, and local government agencies.