Massachusetts Home Buyer Guide

President Joseph Biden unveiled a comprehensive plan last week to reduce housing costs and make homeownership more accessible, particularly for first-time home buyers and low-income families.

The plan, announced during the President's State of the Union Address, included a first-time home buyer tax credit and targeted various aspects of the housing market, including legislative proposals and executive actions, from construction to financing.

Legislative Proposals to Boost Homeownership

Biden's plan calls on Congress to enact several measures to assist Americans in purchasing homes. 

• Mortgage Relief Credit: A proposed credit would offer middle-class, first-time home buyers a $5,000 annual tax credit for two years. The White House claims the proposal would benefit more than "3.5 million families" purchasing their first home over two years.

• Down Payment Assistance: The plan includes down payment assistance (DPA). Up to $25,000 in assistance could be provided to first-generation home buyers, directly helping "400,000 families" to achieve homeownership. The White House, in a statement, said the DPA aims to help "first-generation homebuyers whose families haven't benefited from the generational wealth building associated with homeownership." Indeed, generational wealth is often a step towards the middle class. State and local leaders would be wise to incentivize developers to build affordable homes for consumers to purchase. The majority of the buildings are apartments for rent. 

• Selling Starter Homes: A one-year tax credit, up to $10,000, is proposed for middle-class families selling their starter homes to another owner-occupant. The idea behind the tax credit is to unlock the inventory of affordable starter homes while helping middle-class families move up the housing ladder and empty nesters "right size." Many homeowners have lower rates on their mortgages than current rates. This "lock-in" effect makes homeowners reluctant to sell and give up that low rate, even when their current homes no longer fit their needs. The plan defines a starter home as homes below the area median home price in the county. For example, the median price of a Greater Boston home (across several counties) in 2023 was $850,000, according to the Greater Boston Association of Realtors. The seller must sell to another owner-occupant. This proposal is estimated to help nearly "3 million families."

The plan to boost homeownership has fans and critics. The National Association of Realtors commended President Biden's plan, calling it "an all-of-government approach to solve [the housing affordability supply] problem."

National Housing Conference president and CEO David Dworkin said the President "gave the most consequential State of the Union for housing in over 50 years." Dworkin added, "Not since Lyndon Johnson has a president spent more time and committed more resources to increasing housing supply, making homeownership more attainable, and closing the racial homeownership gap."

Critics believe Biden's plan could backfire by increasing demand, putting upward pressure on home prices. "Truly stunning how little the Biden administration seems to understand housing markets; almost everything they've proposed increases demand, ultimately doing little for housing affordability," former Federal Housing Finance Agency head Mark Calabria wrote on X. "These things are ultimately going to increase demand when fundamentally the problem is supply," Calabria told the Washington Examiner. "Econ. 101. If you juice up demand, you're not going [to] increase sales. You're just going to increase prices. You're not helping anybody."

Executive Actions to Reduce Costs

Last year, the Department of Housing and Urban Development (HUD) reduced the mortgage insurance premium for Federal Housing Administration (FHA) mortgages, saving "an estimated 850,000 homebuyers and homeowners an estimated $800 per year," according to the White House statement. Biden wants to take additional steps to lower home-buying and owning costs. 

• Reducing Closing Costs: The Consumer Financial Protection Bureau will pursue rulemaking and guidance to address what the Biden Administration perceives as anticompetitive closing costs imposed by lenders on home buyers and homeowners. "These charges – which benefit the lender but not the borrower – can add thousands to the upfront costs of a mortgage," the White House said. "Those upfront costs cut into the amount of homebuyers' down payments and reduce homeowners' available equity."

• Lowering Refinancing Closing Costs: The Federal Housing Finance Agency has piloted a policy to waive the requirement for lender's title insurance on certain refinances. The Biden Administration said waiving the requirement would save thousands of homeowners up to $1,500 and an average of $750. The lower upfront fees potentially will unlock savings for homeowners when mortgage rates fall, and more homeowners can refinance. According to an Urban Institute analysis, which the White House cited, across the market, title insurance typically pays out only 3 percent to 5 percent of premiums in claims to consumers, compared to more than 70 percent in other types of insurance. Homeowners can still purchase an owner's title insurance policy if they choose.

The White House statement said the Department of Treasury's Federal Insurance Office will convene a roundtable of industry stakeholders, including consumer advocates and academics, to discuss the title insurance industry and analyze potential reforms.

Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit released the following statement on a Consumer Financial Protection Bureau's (CFPB) blog post on housing costs:

"The CFPB's blog post is baffling and reveals little understanding of how the mortgage market works or awareness of its own regulations that provide for full fee transparency and limits on what can be charged," Broeksmit wrote.

"The fees mentioned are clearly disclosed to borrowers well before a home purchase on forms developed and prescribed by the Dodd-Frank Act and the CFPB itself," the MBA's Broeksmit added. "The illogical use of the term 'junk fee' contradicts even the White House's own definition, which cites the lack of disclosure of the fee being charged."

Building and Preserving Affordable Homes

President Biden urged Congress to support the construction and renovation of more than two million homes to address the shortage of affordable housing. His plan included expanding the Low-Income Housing Tax Credit and introducing a new Neighborhood Homes Tax Credit. Additionally, Biden proposed a $20 billion grant fund to encourage the construction of affordable housing units.

President Biden also called for action to "combat egregious rent increases and other unfair practices driving up rents," eliminate "rental junk fees," and expand housing vouchers.