Mississippi joins a handful of states helping first-time homebuyers save for down payments
Saving for a down payment is often cited as the biggest hurdle for first-time home buyers, particularly young people who are grappling with student loan debt. That’s raising concern with real estate agents nationwide, who are behind a push in several states to establish first-time homebuyer savings accounts.
Mississippi passed legislation in March creating a tax-free savings program for home buying and related expenses. States with similar laws include Montana, Colorado, Virginia, Iowa, and Minnesota.
How It Works
Mississippi buyers open qualifying accounts with financial institutions listed on www.firsthomems.org. The accounts function like 529 savings accounts for college expenses, allowing contributions made during the tax year to be deducted from taxable state income. Individuals can deduct up to $2,500 and joint filers $5,000. The account interest is tax-free as well.
There is no time cap or limit on how much can be saved. As long as the money remains in the account (or is withdrawn for eligible expenses), it is not subject to income taxation at the state level. If the money is used for other purposes, the borrower is penalized 10 percent of the withdrawal amount and all back taxes associated with the account.
By pairing these state down payment savings accounts with low-down payment mortgages (such as Fannie Mae’s HomeReady® mortgage, which offers 3 percent down), a path to homeownership is created for many, notes David Griffith, president of Mississippi REALTORS®. “And that path is now less than 18 months for the average Mississippian,” he says.
Making Its Case
Mississippi REALTORS and the National Association of Realtors® (NAR) helped push the bill through the state legislature, a process that took two years and several drafts. In the end, numbers helped seal the deal. “We found that 7,000 new first-time buyers would enter the housing market statewide over the next five years. Or put another way, about 1,400 renters each year will take advantage of the tax deduction over that five year period as they make the move to homeownership,” says Griffith.
As homeowners, those new residents will spend $1,800 more annually than renters, says the group. “That spending will strengthen communities, stabilize neighborhoods, and boost the local and state economies,” Griffith says.
Other States Are Taking Notice
At NAR’s legislative meeting in May, state representatives including Griffith met to discuss the existing programs and what’s happening in other states.
Oregon is considering a first-time homebuyer savings proposal that would allow individuals to deduct $5,000 from their state income, and joint filers $10,000 to buy their first home. The account could grow to $50,000 for up to 10 years. The bill is supported by the Oregon Association of REALTORS®, which says it could spur 3,200 new homebuyers over the next five years.
Pennsylvania lawmakers reportedly plan to introduce a bill later in 2017. New York, Oklahoma, Maryland, Utah, and Louisiana have also shown interest in approving their own legislation. Additionally, notes Griffith, there’s a lot of interest from financial institutions and home builders in spreading the idea nationally. “We see this as an industry-wide push to strengthen housing markets across the country,” he says.