Zillow’s recent analysis revealed the potential impact of President Joe Biden’s proposed tax credit for first-time buyers. According to Forbes, a $15,000 tax credit, which would be refundable and advanceable, could provide the ability for millions of renters to enter first-time homeownership.
With housing affordability a concern for Congress, the new administration is under pressure to add to the extensive homeowner and rental relief programs made necessary by the pandemic. Currently, rising home prices have made it difficult for many potential homebuyers to take advantage of favorable interest rates.
How the First-Time Homebuyer Tax Credit Could Work
The goal of Zillow’s research was to find out how affordable a mortgage would be to the average renter. For this, they took the median annual income of renter households and compared it with the housing prices in the area.
In Tampa, the median annual income for renter households stands at $42,770. A 3.5% down payment, the minimum required for an FHA mortgage, is $8,698. With interest rates of 3%, a mortgage payment of $1,486 per month would be affordable to 31.4% of current renters.
Saving for a down payment is the most significant roadblock to homeownership for renters. President Biden’s proposal of a federal tax credit for first-time buyers could benefit renters by removing this barrier.
First-Time Homebuyers, Difficulty Saving for Down Payment
Average rent in Tampa increased by 8.6% last year, growing to a median of $1,413. For many prospective homebuyers, after the cost of living and accommodations, money is tight. The average renter household saves around 2.4% per year. At this rate, it would take the renters almost 14 years to save $15,000.
More than 30% of current renters could afford to make mortgage payments based on their annual income. However, a $15,000 tax credit would eliminate the need to save for a down payment. For example, a 5% down payment for the average Tampa house would be no more than $12,425.
Related: Why Buying a Home Is Harder for Millennials
Possible Issues of the Tax Credit
While a first-time homebuyer tax credit would help many renters with their dream of homeownership, there are still many unresolved issues. Minority communities would benefit from the program, but there is concern that it will better support those with better credit scores and higher incomes.
Another potential issue is that this tax credit will only work if there are enough affordable homes on the market. Recently, high demand and low inventory have been driving house prices. As a result, the program could lead to a rise in housing costs, putting homeownership out of reach for those who need it most.
Marimark Realty
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To begin the journey of purchasing or selling your home, or purchasing commercial or investment properties, contact us at your earliest convenience.