Anyone familiar with the housing and mortgage markets in 2024 knows that buying a home is more difficult than in years. Interest rates and home prices remain stubbornly high. That’s why in his recent State Of The Union address, President Biden proposed what some call the Biden Mortgage Plan. If the plan passes, it could help many potential homeowners buy a new home. If you have questions about the Biden mortgage law or want to apply for a mortgage, RefiGuide.org can help you today.
What Is the Biden Mortgage Plan?
The Biden mortgage bill the president mentioned during his speech is a new tax credit proposal that would provide $10,000 to all first-time home buyers.
Biden also proposed a $10,000 tax credit for current homeowners who decide to sell their first home and buy a larger one.
If these plans pass into law, they could help get the real estate market moving in 2024 and beyond.
Many current homeowners have interest rates between 2% and 4%, which they took out during or before the pandemic. It is difficult to get many current homeowners to buy a new home today because current rates are over 6%.
The recent Biden mortgage rule proposal was cheered by many affordable housing advocates. The National Housing Council said the recent State of the Union was one of the most important on housing in decades. If the proposals became law, the tax credits would make it more affordable to buy a home and would improve the economy for many Americans. Housing affordability is a major issue for Americans in all demographic groups and any positive changes in this important policy area could have major benefits for the US economy, experts say.
Biden Home Buying Tax Credit Proposals In Detail
The Biden mortgage plan proposes two tax credits that would help many Americans buy homes when housing affordability is at a record low. The National Association of Realtors recently stated that their housing affordability index was at 87.8. This is the lowest level going back to 1989. A 100 score means an American family with the median income makes enough money to qualify for a home loan at the median home price.
As of May 2024, American families must have a $100,000 income or higher to comfortably buy a typical house. Four years ago, the income needed was just $60,000. Home prices have increased nearly 30% since the pandemic era began. Government spending rose during the pandemic, too, leading to higher inflation, which forced the Federal Reserve to hike interest rates.
However, the Biden mortgage plan with its tax credits could help the situation. The president has made the following proposals:
- A $10,000 first-time homebuyer tax credit
- A $10,000, one-year tax credit for current homeowners who sell their first home for another
The proposed tax credits are seen as a way to help Americans afford a house with higher mortgage rates. The tax credits wouldn’t be permanent, but would be given to homebuyers in 2024 and 2025. It was believed that the Federal Reserve would cut rates in late 2024, but recent inflation numbers suggest that rate cuts may be delayed into 2025.
Who Qualifies For the Tax Cuts?
The Biden mortgage plan states that first-time home purchasers would get a yearly tax credit of $5,000 for the first two years, for a total $10,000 tax credit. The one-year credit for current owners would be for people who are in their starter home, which is a home that is under the median price for their county. The homeowners would need to sell the home to another family and not an investor.
The tax credits are designed to benefit middle class families, with the tax credits only going to families that earn under $200,000.
How Will the Biden Mortgage Rule Help The Housing Market?
The administration believes that the plan would help to get the housing market moving and make homes more affordable again. Many current homeowners have mortgages under 4%, so there is little incentive to sell their home and move into another with a higher mortgage rate. This problem is likely exacerbated by the fact that the Federal Reserve is holding rates steady for now. The anticipated Biden mortgage rate cuts in 2024 look like they will be delayed for another year, at least.
It is estimated by the White House that the first-time buyer tax credit could help three or four million middle-class families purchase their first home. The tax credit could give them a reduction of about 1.5% for two years on the typical median priced home. The homeowner tax credit under the Biden mortgage plan could help three million families move into a larger home.
When Will The Tax Credits Happen?
The Biden mortgage rule or Biden mortgage plan is uncertain to go into effect soon. This is because Congress has to pass new legislation to alter the US tax code. This is unlikely to happen as the presidential election is only six months off. Typically, passing tax credits is challenging in an election year. However, the fact that the issue made it into the State of The Union shows just how much the high housing and mortgage markets are affecting the typical American.
The White House would like to see the House and Senate pass the Biden mortgage plan this year. This would allow current homeowners and potential homebuyers to get the tax credits for this tax year. Homebuyers could get the tax credit for the two years they may claim on their tax returns beginning in the 2024 or 2025 tax year.
New Construction Tax Credits
There also are tax credits available under the Biden mortgage rule for constructing new homes. During the State of the Union, Biden mentioned a Neighborhood Homes Tax Credit. This would offer incentives to renovate or build starter homes, which are homes that are made for first-time buyers with lower incomes. The administration claims that the Biden plan would lead to two million new homes being built.
Tax credit proposals to encourage the building of new homes and rental units could be useful for combating the housing affordability problem, financial experts believe. There hasn’t been a sufficient buildup of homes constructed in the last decade, so there is not enough homes for American families. This leads to higher home prices.
Will The Tax Credits Be Enough To Thaw The Markets?
The proposed tax credits in the Biden mortgage plan could help to thaw the freeze in the housing market that is keeping prices and rates elevated. However, economists who spoke on the record after the State of the Union said that the tax credits could be insufficient for homebuyers to overcome the high rates and home prices.
It’s true that providing tax credits could help to get the market moving. After all, the less you tax something, the more you get of it. In housing, the less housing and home buying is taxed, the greater the activity in the housing market.
But many economists believe that the tax credit for first-time buyers may not be enough to change the behavior or people who would get the credit. The same economists wonder if a $10,000 tax credit is enough to encourage people to sell their starter homes and buy larger homes.
If families decide to take advantage of the Biden mortgage rule, tax credits, and sell their homes, they could have issues finding new homes to buy. The sluggish home market and high rates make many homeowners decide not to sell.
Furthermore, mortgage rates are much higher than three years ago. So homeowners will need more incentive to trade in a low rate for a higher rate on a new home. It is believed that the typical buyer would need to get $50,000 in benefits to make up for the higher mortgage cost.
Summary on Biden Mortgage Programs
The Biden mortgage plan is focused on tax credits to encourage first timers to buy their first home, and to get current homeowners to move up from their starter homes. These proposals, if passed into law, could be helpful to get the US housing market moving again. However, it is likely that these proposals may not move in 2024, right before an election year.
Our Refiguide.org mortgage experts are standing by to help you find the best mortgage program for your needs and budget. Regardless of what happens with the Biden political proposals, we are dedicated to getting you into the most affordable mortgage plan for your needs and budget.
About Dusty
Dusty Brazil is a licensed California real estate agent CA BRE #01780273 and proud to call himself a Realtor with Pacific Sotheby’s International Realty in Del Mar, CA. He's a native to Southern California and local in North County San Diego for over 25 years. You can learn more about him at Twitter, Linkedin, RealtyTimes, and Youtube.
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