Biden Proposes First-time Homebuyer Tax Credit of $5,000

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First-time home buyers may soon get a new credit to help lower the cost of buying a new home. President Joe Biden is proposing a first-time homebuyer tax credit of up to $5,000. Biden is also proposing a tax credit for people who sell starter homes.

First-time homebuyer tax credit: who will get it?

On Thursday, the Biden administration laid out plans to support home buyers and renters by lowering the cost of purchasing a home and cracking down on rental junk fees. The first-time homebuyer tax credit, if approved, is estimated to benefit more than 3.5 million middle-class families in the next two years, according to the White House.

“For many Americans, owning a home is the cornerstone of raising a family, building wealth and joining the middle class,” the Biden administration said in a statement.

Specifically, the administration released the 10-point plan ahead of the president’s State of the Union address. The primary objective of Biden’s plan is to make housing affordable for both homeowners and renters.

President Biden’s proposals include a first-time homebuyer tax credit of $5,000 a year for two years. According to the White House, the $5,000 first-time homebuyer tax credit could effectively reduce the mortgage rate by over 1.5 percentage points for two years on a median-priced home. The average 30-year mortgage rate was 6.88% as of Thursday, as per the data from Freddie Mac.

Biden has also proposed a second credit of $10,000 for a year for people who sold their “starter home.” The tax credit to sellers is estimated to benefit about 3 million families. Additionally, Biden has called on Congress to approve $25,000 down-payment assistance for first-time buyers whose parents are not homeowners.

Is Biden’s proposal enough?

Affordable housing is a growing concern, with home prices rising faster than wages. In January, for instance, home prices increased 5.1% compared to the same month last year, while wages increased 4.5% during the same period.

Early criticism of Biden’s proposal suggests that the credit only addresses one aspect of housing, i.e., it only increases demand without addressing the supply of homes for sale. This, however, isn’t entirely true, as Biden has called on Congress to approve tax credits for builders to develop 1.2 million affordable rental units and 400,000 starter homes.    

Biden’s proposals need to be approved by Congress to become law. The proposals, however, could face opposition in the Republican-run House, who are more likely to oppose the Democratic administration’s priorities in an election year.

Though the fate of Biden’s proposals is uncertain for now, the White House has issued several orders to federal agencies that don’t require approval from lawmakers. The orders include a pilot program by the Federal Housing Finance Agency to lower the closing costs on home refinancing by allowing some transactions without title insurance.