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A plan for a new type of government-backed mortgage assistance program, introduced by a group of Democratic senators: Rev. Raphael Warnock and Jon Ossoff of Georgia, Mark R. Warner and Tim Kaine of Virginia, and Chris Van Hollen of Maryland, similar to the Federal Housing Administration (FHA) mortgage loan, is on the table.
The bill is to produce a new loan product for lower- and middle-income first-time, first-generation homebuyers.
The new mortgage
The new mortgage is known as the Low-Income First-Time Homebuyers Act of 2021, which will be referred to as the LIFT Homebuyers Act, or basically a LIFT mortgage.
Its target is to help people who don’t have a family legacy of homeownership to finally become homeowners themselves, giving them the opportunity to build wealth through homeownership.
The details
The LIFT mortgage will be handled by the Housing of Urban Development (HUD) and insured by the Federal Housing Administration (FHA).
The term of the loan will be 20-year, a one-time mortgage insurance premium of 4% of the loan balance paid at closing and financed into the loan’s principal, and a low fixed rate of 1.5%.
Putting this loan side by side with the current FHA 30-year loan shows that monthly payments will almost be the same (the LIFT will be slightly higher).
But due to the lower interest rate and loan fees, homeowners would build-up
Who is eligible?
Here are the requirements for this loan:
- Annual household income should be less than or equal to 120% of the median income for the area
- First-time homebuyer
- First-generation homebuyer
A person whose parents or legal guardians don’t own a home in any state is a first-generation homebuyer.
Confirming this requirement, referred to as the “attestation clause,” is done through “the best of the individual’s knowledge.”
FHA commissioner Dave Stevens finds this clause somewhat worrying: “The real problem is how you will prove that you’re a first-generation buyer.
As long as a borrower attests to the fact that they’re first-generation, they theoretically are able to apply.” He added there could be some “moral hazard” here.
Reference Source: MSN
