Law Addresses First-time Homebuyer Hurdle
A new law took effect which makes it easier for Virginians to save for their first homes. The Virginia Association of REALTORS®’ 2014 signature legislation, First-time Homebuyer Savings Plans HB331, helps Virginians prepare for homeownership, reminds them how important it is, and is designed to improve the long-term health of the housing market.
Virginians will now be able to invest up to $50,000 in financial institutions like credit unions and banks or directly in mutual funds, brokerage accounts, or almost any other financial vehicle and declare them first-time homebuyer savings plans. The gains or earnings on the investment are free of state taxes, and the funds can be used for down payments and closing costs on first home purchases in the commonwealth.
“We are committed to ensuring that homeownership remains attainable and this is a great tool for first-time homebuyers to prepare to enter the market,” said RAR President Mark Joyner. “We are proud to have supported this legislation and urge everyone aspiring to own their own home—or to help keep their kids from becoming ‘boomerang kids’—to take advantage of this opportunity to plan ahead.”
Whether it’s a grandparent opening an account for a newborn, a forward-thinking high school student, or a recent college grad looking to the future, first-time homebuyer savings plans will reinforce the idea that setting a little something aside today will make it easier to buy a home tomorrow.
“By supporting this plan, Virginia re-enforces the commitment we have to our younger citizens, our families, and the overall recovery of the housing market,” said Delegate Tag Greason, patron of the bill.
Frequently Asked Questions About the Law:
What kinds of accounts can be FHSPs?
Almost any account you have with a financial institution: mutual funds, CDs, brokerage (stocks, bonds, etc.), money markets, insurance, even a savings account. FHSPs can also include individual stocks.
How much can I put in a FHSP account?
You can contribute up to a total of $50,000 in principal, and the account can grow in value up to $150,000. You can put that $50,000 in all at once, or you can contribute over the years. There is no limit on how long the account can exist.
What can I use the money for?
A FHSP account can be used to pay for just about anything related to closing on a home — anything included on the settlement statement: closing costs, inspections, lender fees, etc. These are all considered “eligible costs.”
What is considered a first-time homebuyer?
A first-time buyer is: Someone who has never purchased a home before. That includes single-family homes, condos, coops, townhouses, or mobile homes. (It does not include land or commercial property.)
If you owned a home at some point but did not purchase one — e.g., if you inherited — you can still qualify.
Can I use the money to pay for someone else’s closing costs?
Yes. As long as the person you’re giving the money to (e.g., child, grandchild, niece, and even a close friend) is a first-time homebuyer.
Virginia is ahead of the curve on this initiative. Major real estate and business media figures have written extensively about not only first-time homebuyers who cannot afford the down payments required because of student debt, but also its effect on the housing market. This bill is a way to change that discussion and hopefully act as a platform for other states to enact similar proposals.