Help For Some First Time Home Buyers

The number of first time home buyers has fallen over the past few years as more and more renters have struggled to save for a down payment. The goal of owning their own home has been put on the back burner in favor of paying off debt from student loans and essentials like childcare and healthcare.

Several state legislatures have recognized this trend and created a new type of savings account for their residents to try and reverse it. Think of these tax advantaged first time home buyer savings accounts as similar to other specific purpose tax advantaged accounts like 401(k) retirement accounts, HSA (Health Savings Accounts), and 529 College Saving Accounts. The first time home buyer savings account is currently available in only 8 states: Alabama, Colorado, Iowa, Minnesota, Mississippi, Montana, Oregon, and Virginia (other states are considering adding them as well).

What’s special about these accounts? The rules and eligibility for each account vary by state (since it is not a federal law like 401(k), HSA and 529’s), but in general, these accounts allow you to save for a down payment and related closing costs in a savings account with state tax advantages. Some states make annual contributions (up to a limit) deductible for state tax returns while others make earnings tax-free, and some provide both tax advantages. They also operate similarly to 529 College Savings Plans in that the funds must be used for qualified expenses (down payment, closing costs) to avoid penalties.

Every little bit helps when you are saving towards a down payment. If you want help with starting to save for a home just login to your BrightDime account and start chatting with a coach!