The road to homeownership has always been a complicated one, and for many first-time homebuyers, the journey can seem like an endless series of hurdles. For younger generations like Gen Z and Millennials, buying a home—especially for the first time—often feels out of reach. The Trump administration (2017-2021) played a significant role in shaping policies that affected the housing market, which in turn had direct and indirect implications for first-time buyers. In this blog, we’ll explore how the Trump administration’s policies helped or hurt first-time homebuyers, followed by some essential recommendations for Gen Z and Millennials to get mortgage-ready and turn the dream of homeownership into a reality.
1. The Trump Administration and Housing Policy: The Big Picture
When Donald Trump took office in 2017, the housing market was in recovery mode after the 2008 financial crisis. The Obama administration had implemented a number of reforms aimed at stabilizing the housing market and protecting consumers from risky lending practices. Trump’s policy approach, on the other hand, was focused more on deregulation, tax cuts, and stimulating economic growth through business incentives. These shifts had both positive and negative consequences for first-time homebuyers.
Tax Cuts and Jobs Act (2017)
One of the most significant pieces of legislation passed under the Trump administration was the Tax Cuts and Jobs Act (TCJA) of 2017. While this law slashed corporate tax rates and provided tax cuts for individuals, it had mixed effects on the housing market. For first-time buyers, the TCJA’s changes to the mortgage interest deduction and property tax deductions were a double-edged sword.
- Mortgage Interest Deduction: The new tax law capped the mortgage interest deduction for loans over $750,000 (down from $1 million). While this mainly affected higher-income buyers, many first-time buyers in more expensive real estate markets were impacted. However, for buyers in lower-cost areas, this had little to no effect.
- State and Local Tax (SALT) Deductions: The TCJA also limited SALT deductions to $10,000, which was particularly problematic in states like California, New York, and New Jersey, where property taxes are high. For many first-time buyers in these states, the ability to deduct property taxes was a significant benefit, and the cap made homeownership more expensive.
While these changes may have hurt some first-time buyers in higher-cost markets, the tax cuts overall spurred economic growth, potentially increasing job opportunities for younger buyers.
Deregulation and Lending Standards
Another hallmark of the Trump administration was its emphasis on deregulation, including efforts to roll back some of the post-2008 financial regulations. For first-time buyers, this had both pros and cons.
- Easing Lending Regulations: The Trump administration advocated for reducing the oversight of financial institutions, which included efforts to loosen some regulations on mortgage lending. In theory, this could make it easier for some first-time buyers to secure loans. However, loosening lending standards could also lead to riskier loans, which could have long-term consequences for both buyers and the economy.
- Qualified Mortgage (QM) Rule Adjustments: The Trump administration also moved to eliminate the “patch” that allowed certain loans to be considered qualified mortgages even if they didn’t meet some of the typical credit standards. These adjustments had mixed effects on first-time buyers, especially those with lower credit scores, who may have found it harder to qualify for loans.
Housing Finance Reform and Fannie Mae/Freddie Mac
Trump’s administration also made efforts to overhaul housing finance, focusing on reforming the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which provide liquidity to the housing market by purchasing mortgages. Although no sweeping reform came to fruition during his time in office, there were discussions about shifting the responsibility of these institutions away from the government. For first-time buyers, any uncertainty about the stability of these institutions could have created hesitation in the market, though in the long term, reforms could potentially benefit buyers by creating a more robust housing finance system.
2. The Impact on First-Time Homebuyers: How the Trump Administration Helped or Hurt
While the Trump administration’s policies were not specifically aimed at first-time homebuyers, they had significant indirect effects on the housing market. Let’s break it down:
What Helped First-Time Homebuyers
- Low Interest Rates: During Trump’s presidency, the Federal Reserve maintained relatively low interest rates. These low rates made mortgages more affordable for first-time buyers, helping many of them enter the market. The rates helped young buyers with limited savings afford their first homes, especially when combined with low down-payment options from lenders and federal programs like FHA loans.
- Economic Growth and Job Opportunities: One of the key accomplishments of the Trump administration was economic growth, including low unemployment rates. Many Millennials and Gen Zers entering the job market benefited from a stronger economy, which helped them secure steady employment and improve their financial standing, making them more likely to qualify for a mortgage.
What Hurt First-Time Homebuyers
- Rising Home Prices: The deregulation of housing finance, combined with economic growth, contributed to rising home prices in many markets, especially in high-demand areas. For first-time buyers, this meant higher down payments and more expensive monthly payments. Additionally, wage growth didn’t always keep pace with rising home prices, making affordability a persistent challenge for young buyers.
- Tight Inventory: A key issue during the Trump years was the lack of housing inventory, particularly in affordable price ranges. Many new homes were being built in the luxury market, leaving fewer options for first-time buyers. This resulted in higher competition for limited homes, driving up prices and making it harder for Gen Z and Millennial buyers to find affordable options.
- Impact of Tax Cuts on Property Taxes: While the tax cuts had broader economic benefits, the reduction in SALT deductions hurt some buyers in states with high property taxes, making homeownership even more expensive for first-time buyers.
3. How Gen Z and Millennials Can Get Mortgage-Ready: Practical Recommendations
If you’re part of Gen Z or a Millennial looking to buy your first home, don’t let the political landscape deter you. While government policies certainly have an impact, there are concrete steps you can take to increase your chances of getting mortgage-ready and achieving homeownership. Here are some actionable recommendations:
1. Improve Your Credit Score
Your credit score plays a huge role in determining the mortgage rate you’ll receive, and therefore, how much home you can afford. Work on improving your credit score by:
- Paying bills on time
- Keeping credit card balances low
- Checking your credit report for errors
- Avoiding opening too many new credit accounts at once
A score of 620 is typically the minimum for many conventional loans, but the higher your score, the better your loan options.
2. Save for a Larger Down Payment
The more you can put down upfront, the better. Many first-time buyers rely on FHA loans, which require as little as 3.5% down, but putting down a larger down payment can help you avoid private mortgage insurance (PMI) and reduce your monthly payments.
3. Understand Your Budget
Don’t just look at the price of the home. Consider your total monthly housing expenses, including property taxes, homeowners insurance, and maintenance costs. Make sure your housing expenses fit comfortably within your budget, ideally not exceeding 28-30% of your gross monthly income.
4. Consider First-Time Homebuyer Programs
Take advantage of any state or federal first-time homebuyer programs. These programs often offer down payment assistance, lower interest rates, and more lenient credit requirements. The FHA, VA, and USDA loans are all worth exploring for first-time buyers who meet the eligibility criteria.
5. Be Prepared for Rising Costs
If you’re entering the housing market in an expensive area, brace for higher home prices and more competition. Stay flexible with your expectations—consider looking at different neighborhoods or smaller homes to make homeownership more affordable.
6. Keep an Eye on Interest Rates
Interest rates fluctuate, so keep a close eye on the market. While rates were low during the Trump administration, they may rise or fall in the future. Even small changes in interest rates can affect how much you pay for your mortgage, so timing your purchase can be critical.
Conclusion
The Trump administration’s policies had both positive and negative effects on first-time homebuyers, from tax cuts to deregulation. However, the fundamental challenges of rising home prices and limited inventory persisted. As a Gen Z or Millennial looking to buy your first home, it’s important to stay informed about the political and economic landscape, but more importantly, focus on the steps you can take to get mortgage-ready. With a solid credit score, savings plan, and understanding of your financial situation, homeownership is within reach.