As the economy works to rebound from the effects of COVID-19, first-time homebuyers across the nation are weighing the risks and benefits of entering the housing market during such volatility.
Although the CARES Act has provided short-term relief to many, legislators are working to pass additional relief packages, the latest of which is Rep. Sean Mahoney’s (NY-18) First Time Homebuyer Pandemic Savings Act.
Announced on Tuesday, the Act allows first-time buyers to use funds from their retirement accounts “under the umbrella of coronavirus-related distributions” for a down payment. Withdrawals under $25,000 will be tax-exempt and penalty-free.
“Making sure the next generation of homeowners have the resources they need to buy their first home is going to play a big role in our economic recovery,” he said in a press release. “This bill is a smart, innovative way to bring new opportunity to new homebuyers and help young families get one step closer to realizing the American dream.”
The FTHPS Act builds on current CARES Act provisions for new and repeat homebuyers that allow them to withdraw up to $100,000 of their 401(k) balance penalty-free until the end of 2020.
“The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed in March, created a new hardship withdrawal for Americans who invest in 401(k)-type contribution plans or individual retirement accounts (IRAs) for those impacted financially by COVID-19,” Mahoney said of the current CARES provision. “The coronavirus-related distribution is not subject to the early-distribution penalty of 10 percent and can be repaid over three years.”
The FTHPS Act, if passed, would also extend the coronavirus-related distribution clause in the CARES Act to December 31, 2021.
The National Association of Realtors announced its support of Mahoney’s proposal on Wednesday, with NAR President Vince Malta saying it would make a “tremendous difference” for first-time buyers struggling to save.
“While various barriers have stood in the way of homeownership for younger generations, COVID-19 has pushed the American dream further out of reach for countless families and individuals by no fault of their own,” Malta said in a written statement. “This legislation would make a tremendous difference to those struggling to save for the down payment on their all-important first home.”
“With homeownership remaining one of the best and most sustainable ways for Americans to build wealth, the nation’s 1.4 million Realtors applaud Rep. Maloney for his leadership,” he added.
Financial experts usually steer people away from using their retirement funds for large purchases; however, a number of them are saying the provisions in the CARES Act are too good to pass up, especially when buyers have a robust 401(k).
“Anytime there’s a macro event of this magnitude, there will always be uncertainty and emotions will run high. Whenever that happens, it’s a buyer’s market,” New York Equity Group founder Philip Michael told Architectural Digest on Monday. “With the CARES Act, it allows anyone who’s had a decent nest egg, or even a 401(k), the ability to capitalize on that.”