By Marito Domingo
For millions of credit union members and consumers renting homes and apartments across the country, the thought of home ownership has seemed like a fantasy.
There are plenty of barriers for potential first-time buyers that can make home ownership feel out of reach. A hyper-competitive market, down payments and rising costs come to mind. These factors, which extended back before a global pandemic, put further economic pressure on families, and the events of 2020 certainly made these obstacles even more difficult for many people.
Credit unions have the opportunity to pay a role in alerting members to policy changes at the national level (and the state level, in some cases), potentially forcing some of these barriers to come down and inviting a wave of young adults and other first-time home buyers to the market. So is now the time for your members to buy?
Under a proposed tax plan from President Joe Biden, eligible first-time homebuyers could receive a refundable up-front tax credit up to $15,000 to put towards their new home. This credit is intended to help new homeowners afford down payments.
In addition to this tax credit, some states and cities have recently enacted their own assistance programs to court first-time home buyers.
According to a report from Zillow, the proposed $15,000 tax credit would allow 9.3 million (27.4%) U.S. renter households to afford local monthly mortgage payments for the median home sold in 2020 in their area. Even more, this $15,000 credit would potentially cover an entire minimum down payment in 40 of the 50 largest metropolitan areas in the country. The results could indeed be a game-changer for millions of current renters.
These figures should motivate some potential homebuyers to make their first jump into the housing market —which means they are going to have questions for their credit unions.
One point your CU might want to stress: On average, renters in this country spend more of their income on rent than homeowners spend on their mortgage. That means an upfront tax credit could be all the extra incentive needed for current renters to seek the long-term savings that a mortgage could provide.
Important Reminder
However, it should be noted that the most likely benefactors of these proposed tax credits are people who are already close to buying a house—and not necessarily the low-income earners who face inequalities in the housing market. Down-payment assistance isn’t the only thing standing between millions of people and their dreams of home ownership. More will need to be done nationally to counteract the systemic issues involving racial and economic disparities in home ownership.
Members should also be made aware another path for current renters to buy a home could come through the expansion of Federal Housing Administration (FHA) loan options. FHA loans can be attractive solutions for people who can’t otherwise afford average mortgage payments. Increasing FHA lending and lowering monthly premiums on these payments--an idea that has been raised by experts recently--could provide a great situation for hopeful home buyers.
Providing Reassurance
Members will need reassurance and help, along with a reminder that buying a home is a process, not just a single transaction. Whether a member is in the market to buy a home, expecting to buy in the near future, or just needs help getting a plan started, make sure your credit union can perform a valuable service—and attract more loans—by working with members to understand their financial options so they have an understanding of all the resources at their disposal.
Marito Domingo is chief credit officer & CFO with First Tech Federal Credit Union in Oregon.