$0 DOWN MORTGAGES ARE BACK (Get Paid To Buy A Home)

What's up you guys? It's Graham here, and the housing market is about to explode. That's right! In the middle of record-high prices, record-high mortgage rates, and record-low inventory, a brand new proposal was just announced that would give first-time home buyers and starter home sellers a $10,000 tax credit. It would give developers an incentive to build and renovate more than 2 million homes, eliminate some of the red tape that comes along with mortgage costs, and push forward initiatives that would help lower the price of rent.

To be honest, this is only the tip of the iceberg in terms of what the White House is planning to offer. Even though they say the goal is to help ease the pressure of rising home values, critics say that this is only going to make the situation worse and flood the market with more buying pressure than the market's able to handle. That's why we got to discuss exactly what's being proposed, how much money you could get as a future home buyer or seller, if this is going to add fuel to an already competitive housing market, and then what you could practically do with this information to come out ahead.

Because there are some details that everybody needs to be made aware of. Although before we start, as usual, if you guys enjoy videos like this where I just cover the facts, all I ask for in return is that you hit the like button and subscribe. If you want even more details than I'm able to provide in a YouTube video, I have a link to a newsletter down below in the description. Go ahead and sign up for that; it's totally free. Thank you so much, and now let's begin.

All right, so in terms of why this is being proposed, it all has to do with two words: home affordability. See, a basic way to measure the housing market is to take the average sales price in monthly payment, divide that by the area's average income, and voila! You have a formula to determine how many buyers qualify in a certain market. On a really basic level, this gives us a pretty good indication of whether or not the current market is over or undervalued.

In terms of what's happening today, nationwide, we have the worst affordability since 1984. CNN reported currently 38.6% of the median household income is required to make the monthly payment on the average home purchase, and typically a home is considered affordable if that number is below 30%. This, unfortunately, has resulted in 99% of the United States being unaffordable for the average American making $71,000 a year. Comparatively, this means that depending on where you live, you could require an income that's 70% higher than what you needed back in 2020.

If you want to put that into actual numbers, buyers in San Diego need to make $273,000 a year to afford the average home. Los Angeles needs $279,000, and San Jose requires, wait for it, $454,000 every single year to be able to afford something like this. The reality is affordability has not been this bad since the stagflation era of 1981. With housing prices quickly pulling out of reach of the typical buyer, the White House has stepped in with some proposed changes to make things a lot easier.

I got to say some of them are quite nice, and others are going to have some long-term consequences. The first order being proposed is a mortgage relief credit. As reported, the White House issued an official statement calling on Congress to provide middle-class first-time home buyers with an annual tax credit of $5,000 a year for two years. This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home and will help more than 3.5 million middle-class families purchase their first home over the next two years.

Or really, in essence, think of it this way: the $10,000 tax credit is enough to offset the cost of higher interest rates over the next two years. Hopefully, by then, interest rates will be lower than they are today, and you'd be able to refinance to save the extra money. However, what they don't tell you is that this plan falls short in so many ways. Let me explain.

First, the $10,000 credit is nice if you are going to buy a home anyway, regardless of where mortgage rates are. But the way I see it, this $10,000 should not be the reason that you go and buy a home. It should not be the thing that pushes you over the edge if you are on the fence. Why? Well, as they explained, this tax credit is only enough to subsidize the cost of higher interest rates for two years, and then after that point, you're stuck paying the full cost of ownership.

Now, of course, I'm sure some people will say, "But Graham, the Federal Reserve is going to lower interest rates, and by the time the two years comes up, you could just refinance and save the extra money." And sure, okay, it's likely to be true. But number one, it's not guaranteed. Two, there's a chance that interest rates in the future could be identical to where they are today. And number three is, I'm about to show you, refinancing could be very, very expensive.

CNN recently did a fantastic breakdown of the average refinancing costs, and they found that it ranges between 2 to 6% of the entire loan balance. That means with a $200,000 mortgage on a starter home, you're looking at between $5,000 to $12,000 out of pocket just to lower your interest rate, completely wiping out the tax credit that you received.

Now, to me, as someone who's worked in real estate full-time for the last 16 years, I think this is only going to benefit people who are going to buy a home anyway, regardless of market conditions. I don't see this as a way of driving viable demand during a time that we already have record-low inventory. But we'll continue because this goes on to the next part.

In order to help bring more inventory under the market, since sellers are locked into low interest rate mortgages, they also propose to give sellers a one-year tax credit of up to $10,000 to middle-class families who sell their starter home to another owner-occupant. This means that for 88% of the country, homes under $350,000 would qualify.

But again, the problem is three-fold: One, these sellers are going to have to pay a higher mortgage rate when they become buyers on their next home. Two, they're probably going to have a much higher property tax basis because guaranteed they're paying less than what the property is currently worth. And three, these sellers need to move somewhere, so without more available for sale, it's likely to be a wash in terms of adding inventory.

This also might be difficult to stipulate that it's sold to an owner-occupant because for many sellers who’ve been in their properties for decades, there's a lot of neglected maintenance and upkeep. So unless the future buyer wants to do a substantial amount of work and spend a lot of money, it might be sold to an investor, which would completely disallow the $10,000 tax credit.

Again to me, this seems great for people who are already planning to sell their home to begin with, but it's not enough to push a seller over the edge who's not really thinking about selling. Like $10,000 is not going to be a good enough reason to prompt people to put their homes up on the market.

Third, they're calling for down payment assistance. As they say, the president continues to call on Congress to provide up to $25,000 in down payment assistance to first-generation home buyers whose families haven't benefited from the generational wealth building associated with homeownership. Now, before we go into some of the specifics, it's important to mention the down payment assistance is really nothing new, and there are plenty of programs that already exist. You just have to go and find them.

For example, Nevada offers a $25,000 forgivable down payment to eligible homeowners purchasing a primary residence anywhere in rural Nevada. This is structured as a second loan with zero interest, no payments, and it's forgiven in three years or on December 31st, 2026. This is also the same premise as the Down Payment Towards Equity Act of 2023, which was Joe Biden's revised proposal of the 2021 Down Payment Act.

As they say, to qualify, you must be a first-time home buyer, earn a lower moderate income consistent for the area, buy a home that will be used as a primary residence, use a government-backed mortgage, and be a first-generation home buyer. Either have parents or legal guardians who defaulted on a home loan or lived in foster care during their lifetime. Just like today's proposal, it'll include a down payment assistance of $25,000.

However, since 2021, this has been sitting with Congress and not yet passed into law. Although, like I said, down payment assistance already exists on a state level. Like just look at California's Dream For All Shared Appreciation Loan. I know what a name, right? Anyway, this is a program that was introduced a year ago that would give first-time home buyers a 20% down payment when they go and purchase a property.

After you close, the new buyer would eventually pay back the loan when they sold the house plus 20% of profits. For example, if you go and buy a $500,000 home while borrowing $100,000 from this program, if the home is one day sold for $640,000, you pay back the original loan in addition to 20% of the profits, leaving you with whatever is left over. Well guess what? The program was so unbelievably popular that all $300 million was completely gone in 11 days! It's gone! It's all gone! That is an average of $130,000 per person during a time when housing is at its most expensive.

Oh, and if you thought the program was over? Nope! It was so popular they brought it back again for 2024, except with a few other qualifications: One, you must be a first-generation home buyer, meaning your parents don't already own a home. Two, you must make no more than 120% of the area's median value, reduced from 150% a year ago. And three, you must have a credit score of at least 680 and a debt-to-income ratio of no more than 45%.

Now, in terms of California's down payment programs, I can't help but think that it's such a very dangerous precedent that if housing values continue rising higher, down payments are just going to be subsidized by the state, even if that entitles them to 20% of profits. When this happens, all of a sudden the state now has a financial incentive for housing values not to go down, especially when they have their money at risk. I think the real winners here are existing homeowners because now they have an extra 2,000 buyers in the market at a time again when there's a low amount of inventory. Basically, this just increases demand without increasing supply.

But now that we got the purchasing aspect out of the way, let's go and talk about loans. The fourth aspect to be changed is refinancing. As I mentioned earlier, getting a loan or a refinance could be very expensive, and this aims to chip away at that. In this case, they're introducing a pilot program that would waive the requirement for lenders' title insurance and certain refinances. This would save thousands of homeowners up to $1,500, and the lower upfront fees will unlock substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance.

As they explain, title insurance companies could be so profitable that they pay out just 3 to 5% of their premiums to consumers compared to more than 70% in other types of insurance. So it's time to have these fees reduced. These are also going to extend throughout closing costs, which as someone who's represented more than $130 million worth of real estate deals as an agent, are absolutely absurd in terms of what they charge you.

Buying or selling a home is stacked with fees on top of fees on top of fees for every little thing that you could think of, and all of this can add up to sometimes tens of thousands of dollars depending on how expensive the home is. Although keep in mind, at this point, it's not exactly clear what they're going to do and how much of an effort they're going to make to lower these costs, so it's still to be determined.

Although since demand is only one side of the equation, let's talk about adding more supply. Like I mentioned earlier, housing inventory is still near record low levels, and just from what I've seen, a lot of people would rather keep their home than risk giving up their mortgage, which is understandable. But because of that, if you're currently a homeowner or you're looking to buy a home in the near future, learn from my mistake and research putting your home in a trust. The fact is property records are public information, so if your name is on title, anyone could search it up and find its value. But a trust, on the other hand, is the ultimate form of privacy and allows you to keep all of your details confidential.

Under certain conditions, assets held within a trust carry some pretty substantial tax benefits depending on how it's structured. Again, this is something I wish I would have known when I purchased my first property. But thankfully, setting up a trust and then transferring a home into a trust, even after you bought it, is a lot easier than it used to be. All thanks to our sponsor, Get Dynasty! They have completely expedited the process of setting up a trust in a few spare minutes from your computer or phone, and you could even do it while you're multitasking for less than $100.

This is also something that's a lot easier to do now than wait and do it later because the more assets you acquire, the more work it's going to take to retitle everything. So if you currently own a home or you're looking to buy a home in the near future and you have a few spare minutes, use the link down below in the description or go to Gdynasty.com/gram and use the code Graham for 10% off! Plus, they even allow you to get started for free if you're interested! And real talk, even if you don't use them, just research the benefits of putting a home in a trust. I promise it's very intriguing.

Thank you so much for listening, and now with that said, let's talk about adding more supply onto the market. Another major measure of this plan would pass legislation to build and renovate more than 2 million homes, which would close the housing supply gap and lower housing costs for renters and homeowners. Essentially, this would give tax credits to those who build or renovate low-cost housing since development could be very risky, time-consuming, expensive, and generally only makes sense for luxury units.

For instance, just consider this: if you're a developer, you need to invest at least 2 to 3 years into a project. You also need to invest a lot of money in the project, and you also have to make sure that there are profit margins built in to make the development worth it. So because of this, it's generally the safest to build as much square footage as you can at the highest price point you can, and that really maximizes what you're able to get for your time.

Flat out, properties below a certain price point don't make any sense to develop. There's no money in it; people will lose money, so they don't do it. Now a tax credit would certainly help with this, but it's unclear exactly how much it's going to be. Now, in addition to that, there's also a $2 billion housing expansion fund that would help support the construction of affordable multifamily rental units, incentivize local actions to remove unnecessary barriers to housing development, pilot innovative models to increase the production of affordable and workforce rental housing, and spur the construction of new starter homes for middle-class families.

Finally, speaking of rent, this last initiative will help drive down costs. How? Well, the first has to do with corporate landlords who use algorithms to determine the highest rent they could generate based on nearby properties that the algorithm also monitors. Essentially, it's alleged that this constitutes price fixing since it could be used throughout the majority of available units in an area with very little room for new price discovery.

Landlords love it because it leaves emotion out of the mix, but others say that it aggregates competitor data for the greater profit of landlords, and that's very expensive to tenants. On top of that, they're also going to aim to eliminate junk fees throughout the rental process, including convenience fees to pay rent online and fees charged to sort mail or collect trash. They argue that these fees are often more than the actual cost of providing the service or are added on to rents to cover services that renters assume are included or that they don't even want.

Now on this one, I tend to agree that certain fees, like convenience fees for paying a bill online, are getting absolutely absurd. I recently had to pay $2.75 just as a convenience fee to pay a $50 bill. That's sick. But I could also see the landlord's perspective that if they are providing an additional service, they deserve to make a profit on top of that, just like any other business.

Now usually, this is just baked into the overall cost of the lease, and it's never really itemized, but I guess we'll leave that for another video. Anyway, in terms of my own thoughts on this, again, as someone who's worked full-time in real estate since 2008, I can't help but feel like this is a misguided effort with good intentions that practically won't do much other than help people who are already going to buy or sell anyway.

I tend to think that this is not enough on its own to push people off the fence, and even if it is, then we have a big problem that there's a lot more buyers than there are sellers with very low inventory, and the outcome to that is simply that prices just go higher. Like you remember 2008? Now, just to clarify, this is not a one-to-one comparison by any means, but the last time government got involved in housing, it didn't end well.

That's because back in 2014, policies opened up that allowed major lending institutions to begin issuing riskier subprime loans in an effort to meet affordable housing guidelines. Basically, Housing and Urban Development wanted to improve the homeownership rates for people who couldn't afford to buy a home, so they introduced no down payment, stated income, and balloon payment terms so that anybody who signed on the dotted line would be able to get a house. And we all saw how that turned out.

Again, I'm not saying this is a one-to-one comparison because down payment assistance is not going to crash the market, but it does risk putting a lot of pressure on a market that's already very fragile. The way I see it, if you actually want to make a measurable difference in the housing market and not just do things for political posturing, here's what I think will actually make a difference.

First, make it possible to take your loan balance and the interest rate with you when you go and buy another home. I don't get how this is such an impossible concept. It seems like it would make sense that if you have a loan, you could take that loan balance with you and roll it into the next home so you keep your mortgage interest rate; you don't have to give that up. If this happens, guaranteed you're going to see every seller relocate to a home that better suits their needs. They're going to want to sell their home because they finally can.

Most likely, the only reason this isn't already a thing is because the investors of mortgage-backed securities typically see their loans paid off in full within 7 to 12 years. Because after all, people don't keep their home for that long, and when they sell it, that balance then pays off the loan. So this would completely screw up that market to a certain degree. But if we could find a way around this so that once people have a loan, they could take it with them on the next home, at least on a primary residence, it'll open up a lot of inventory.

Second, they should allow you to take the tax basis with you. The fact is, homeowners are sitting on a ton of equity, and since those property values are typically tied to the value of the home when you purchase it, it could be very expensive to move. This entices a lot of people to stay and never sell because by selling they would be giving up the low property tax basis and would have to pay a lot more on the next one. If you get rid of this and allow people to take their property tax bases to the next one, it'll solve the problem entirely.

Three, reduce capital gains when you sell a property. I know this one is a bit unpopular, but it's true. There are so many homeowners out there who are sitting on record gains, and they don't want to sell because they don't want a portion of those proceeds to go to taxes, sometimes as high as 37%. Just imagine you bought a property in 1970 for $100,000, and now it's worth $3 million. Even with the $500,000 capital gain exclusion on a primary residence, if you lived in California, that is an $880,000 tax bill just gone because you sold.

Finally, fourth, give tax credits to builders. I promise if you eliminated or reduced taxes on profits generated from property development, you would have so many developers jumping on the chance to go and build more homes. Alternatively, if you give builders a subsidized interest rate as an incentive to build more homes, they will build more homes. I hate to say it, but everything here is about money, and if you make it enticing to build low-income units or starter homes, they'll build those units.

As a real estate guy, these four items would have a measurable difference immediately. Even I would consider selling if I could take the loan with me, and that says a lot because I absolutely love where I live. But since I have a 2.8% mortgage rate fixed for the next 30 years, I'm not going anywhere; I'm keeping that for as long as I can. The same applies if I were a developer right now. There's just too much risk; there's too much uncertainty, and interest rates are too high.

But if all the profits were tax-free, well, that's something I would consider. To me, this just seems like a net positive because the alternative is just no new construction anyway. For anybody listening, this is just my take, and I would love to know if you agree or disagree down below in the comment section. Don't forget, if you want more information that I'm able to include in a YouTube video, I do have a newsletter down below in the description; it's totally free! I post all my research there once a week, so if you want to be a part of it, the link is down below.

Thank you so much, and until next time!