POST TAGSMortgage News
Blog posted On July 27, 2021
At the end of May, HUD Secretary Marcia Fudge introduced details of President Biden’s $2.3 trillion infrastructure proposal dubbed the “American Jobs Plan.” A large part of this plan is the proposed $318 billion dedicated to housing investments. Additionally, the Biden Administration proposed a new federal tax credit, the Neighborhood Homes Tax Credit, designed to encourage construction and rehabilitation of homes in underserved communities. The primary goal of this act would likely to increase homeownership opportunities for low- and moderate-income buyers in underserved communities. However, there would also be another large incentive be for inventors.
One of the goals of the Neighborhood Homes Tax Credit would be to incentivize “private investment in the development of affordable homes,” according to a White House fact sheet. Investors who purchase, rehabilitate, and sell homes in underserved areas would qualify for the tax credit – which would help cover any losses that investors might incur from investing in these areas. Not only does this benefit the investor, but it helps develop undeserved areas and provide homeownership opportunities to lower-income families.
A key step in this process is the sales factor. Investors won’t qualify for the tax credit upon their purchase of a home. They’ll need to rehabilitate and then sell the property to eligible home buyers. The proposal also stipulates that the sales price must not exceed four times the area median family income. Incomes of the home buyer must not exceed 140% of the area median family income.
The White House estimates that about 25% of all Census tracts are classified as undeserved. These areas have poverty rates that are at least 130% of the area poverty rate, with a median family income lower than 80%, and with median home values lower than the area median home value.
Julia Gordon, president of the National Community Stabilization Trust (NCST), commented on the benefits of the proposed tax credit, saying, “NCST strongly supports this legislation, which is different from other real estate development incentives because it is reserved for homeownership only […] The goal is to support rehabbing or constructing homes at scale, so we could potentially see comprehensive community revitalization projects that affect 50, 100, or even more units.”
The availability of affordable housing in low-income tracts is especially important in the rising home price environment. In April, the National Composite for the Case-Shiller home price index saw the largest gain in more than 30 years – reaching 14.6% year-over-year. The average resale price of previously distressed properties in low-income areas was 20% lower than the average resale price of properties not located in low-income tracts.
Though the passage of Biden’s “American Jobs Plan” remains to be seen, we will continue to keep you updated with any new developments. In the meantime, if you would like to explore any of our low-down payment mortgage options, let us know. We have several low down payment options including 100% financing through the USDA Loan and VA Loan.
Sources: HousingWire, S&P Global, White House