Biden proposes $5,000 tax credit for first-time homebuyers

First-time homebuyers will soon be able to get a new credit to help lower the cost of buying a new home. President Joe Biden has proposed a tax credit of up to $5,000 for first-time homebuyers. Biden is also proposing a tax credit for people selling their first homes.

First Home Buyer Tax Credit: Who Can Get It?

The Biden administration on Thursday rolled out a plan to support homebuyers and renters by lowering the cost of buying a home and cracking down on rental junk fees. If approved, the first-time homebuyer tax credit is estimated to benefit more than 3.5 million middle-class families over the next two years, according to the White House.

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

Specifically, the administration announced a 10-point plan ahead of the President’s State of the Union address. A key goal of Biden’s plan is to provide affordable housing for both homeowners and renters.

President Biden’s proposal includes a tax credit of $5,000 per year for two years for first-time homebuyers. A $5,000 first-time homebuyer tax credit could effectively reduce mortgage rates on a median-priced home by more than 1.5% over two years, according to the White House. As of Thursday, the average 30-year mortgage rate was 6.88%, according to data from Freddie Mac.

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

Is Biden’s proposal enough?

With home prices rising faster than wages, interest in affordable housing is growing. For example, housing prices in January rose 5.1% compared to the same month last year, and wages rose 4.5% during the same period.

Early criticism of Biden’s proposal suggests the credit addresses only one aspect of housing. In other words, it only increases demand without addressing the supply of homes for sale. But that’s not entirely true, as Biden has called on Congress to approve tax credits to help builders develop 1.2 million affordable rental homes and 400,000 starter homes.

Biden’s proposal must be approved by Congress to become law. But the proposal could face opposition in the Republican-run House, which is more likely to oppose the priorities of a Democratic administration in an election year.

The fate of the Biden proposal is unclear at this time, but the White House has issued several orders to federal agencies that do not require approval from lawmakers. The order includes a pilot program by the Federal Housing Finance Agency to lower home refinance closing costs by allowing some transactions without title insurance.