Legislation that would provide qualified home buyers with $5,000 grants toward the purchase of a home is all but law, pending President's Bush signature.

Not without its critics, the "American Dream Downpayment Act" (ADDA) also may fall short of expectations after the U.S. House of Representatives slashed initial funding by more than half.

Bush is expected to sign the bill, passed Tuesday in the House, and that would mean more than 17,000 qualified, first-time home buyers could get down payment assistance next year, down from the originally projected 40,000.

Surveys have shown down payment money is one of the biggest stumbling blocks to home ownership.

Funding was initially set at $200 million each year from 2004 through 2007, but in a compromise with the U.S. Senate's version of the bill, the House slashed that amount to only $87.5 million, at least for the first year. The compromise doubled the act's life span from two years to four.

The new law will provide an average of $5,000 in down payment and closing cost assistance to help first-time home buyers with annual incomes that do not exceed 80 percent of their area median income.

The grants will be made to state and local governments through the U.S. Department of Housing and Urban Development's HOME Investment Partnership program, an existing state block grant program funding a wide range of affordable housing programs.

Families interested in applying for ADDA grants should contact their state or local housing agency.

The new law includes two additional provisions backed by real estate and mortgage industry trade groups.

It will increase Federal Housing Administration loan limits for the construction of multi-family housing in high-cost areas including Boston, New York and San Francisco metro areas from $194,190 to $218,465 per unit. The bill also provides a technical correction to the Federal Housing Administration's adjustable-rate mortgage program to make the product more available to consumers.

Washington, D.C. conservative think-tank the Heritage Foundation, says the new law amounts to a handout instead of a hand up and won't teach home buyers thrift, and by association, responsibility.

"With no financial or personal stake in the property or neighborhood, such owners see themselves as little different from renters, and often act accordingly," the foundation claims.

But the program comes with a financial counseling requirement which studies have shown to significantly enhance the prospect of first-time home buyers remaining homeowners.

At this point the foundation's complaints are moot.

"Owning your own home is part of the American Dream, and this bill will make it possible for tens of thousands of low-income families to achieve that dream by helping offset the up-front costs of buying a home," said Congressman Mario Diaz-Balart (R-Fla.), a cosponsor of the bill.

"It is vital that we remove the obstacles that prevent low-income families from building wealth. This Republican Congress sees these families' need and have acted swiftly to help," he added.

Published: December 11, 2003

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.