‘‘(ii) by its terms requires repayment
in full upon the sale or other transfer of
the dwelling unit, and
‘‘(iii) may not be used as security for
any loan secured by any interest in the
dwelling unit.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ELIGIBLE
PARTICIPANT.—The term
‘eligible participant’ means an individual on
whose behalf an individual retirement plan is
established.
‘‘(B) FIRST-TIME HOMEBUYER.—The term
‘first-time homebuyer’ means an individual
who—
‘‘(i) is an eligible participant or quali-
fied family member, and
‘‘(ii) had (and if married, such indi-
vidual’s spouse had) no present ownership
interest in a principal residence at any
time during the 36-month period before
the date of the arrangement.
‘‘(C) QUALIFIED
FAMILY
MEMBER.—The
term ‘qualified family member’ means a child
(as defined in section 151(c)(3)), parent, or
grandparent of the eligible participant (or such
participant’s spouse). Section 152(b)(2) shall
apply in determining if an individual is a parent
or grandparent of an eligible participant (or
such participant’s spouse).
‘‘(D) ACQUISITION; ETC.—
‘‘(i) ACQUISITION.—The term ‘acqui-
sition’ includes construction, reconstruc-
tion, and improvement related to such ac-
quisition.
‘‘(ii) ACQUISITION
COST.—The term
‘acquisition cost’ has the meaning given
such term by section 143(k)(3).
‘‘(E) PRINCIPAL
RESIDENCE.—The term
‘principal residence’ has the same meaning as
when used in section 1034.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to arrangements entered into after
the date of the enactment of this Act.
SEC. 4. LOANS USED TO ACQUIRE PRINCIPAL RESIDENCES
FOR FIRST-TIME HOMEBUYERS.
(a) 
INDIVIDUAL
RETIREMENT
PLANS.—Section
408(e) of the Internal Revenue Code of 1986 (relating to
tax treatment of accounts and annuities) is amended by
adding at the end thereof the following new paragraph:
‘‘(7) LOANS USED TO PURCHASE A HOME FOR
FIRST-TIME HOMEBUYERS.—
‘‘(A) IN
GENERAL.—Paragraph (3) shall
not apply to any qualified home purchase loan
made by an individual retirement plan.
‘‘(B) 
QUALIFIED
HOME
PURCHASE
LOAN.—For purposes of this paragraph, the
term ‘qualified home purchase loan’ means a
loan—
‘‘(i) made by the trustee of an individ-
ual retirement plan at the direction of the
individual on whose behalf such plan is es-
tablished,
‘‘(ii) the proceeds of which are used
for the acquisition of a dwelling unit which
within a reasonable period of time (deter-
mined at the time the loan is made) is to
be used as the principal residence for a
first-time homebuyer,
‘‘(iii) which by its terms requires re-
payment in full not later than the earlier
of—
‘‘(I) the date which is 15 years
after the date of acquisition of the
dwelling unit, or
‘‘(II) the date of the sale or other
transfer of the dwelling unit,
‘‘(iv) which by its terms treats any
amount remaining unpaid in the taxable
year beginning after the period described
in clause (iii) as distributed in such taxable
year to the individual on whose behalf such
plan is established and subject to section
72(t)(1), and
‘‘(v) which bears interest from the
date of the loan at a rate not less than 2
percentage points below, and not more
than 2 percentage points above, the rate
for comparable United States Treasury ob-
ligations on such date.
Nothing in this paragraph shall be construed to
require such a loan to be secured by the dwell-
ing unit.
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ has the mean-
ing 
given 
such 
term 
by 
section
4975(h)(3)(B).
‘‘(ii) ACQUISITION.—The term ‘acqui-
sition’ has the meaning given such term by
section 4975(h)(3)(D)(i).
‘‘(iii) PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iv) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (B) applies is en-
tered into, or
‘‘(II) on which construction, re-
construction, or improvement of such
a principal residence is commenced.’’.
(b) PROHIBITED TRANSACTION.—Section 4975(d) of
the Internal Revenue Code of 1986 (relating to exemptions
from tax on prohibited transactions) is amended by strik-
ing ‘‘or’’ at the end of paragraph (14), by striking the
period at the end of paragraph (15) and inserting ‘‘; or’’,
and by inserting after paragraph (15) the following new
paragraph:
‘‘(16) any loan that is a qualified home pur-
chase loan (as defined in section 408(e)(7)(B)).’’.