Home buyer savings account?

Maryland first-time home buyers may soon have another program to help them buy a home.  Two related bills are making their way through the Maryland General Assembly to create a first-time home buyer savings account. If enacted, Maryland would join a handful of other states that have already enacted such programs to incentivize home buying.

home buyer savings account
Home buyer Savings Account (infographic from realtormag.realtor.org)

The bills are an effort to address the lack of first-time home buyer participation in the housing market. The lack of first-time home buyer participation has received a lot of attention since the Great Recession. Not just because of the rising costs of buying a home, but also because of the lack of home buyer savings. The lack of down payment was identified by the National Association of Realtors as one of the issues barring first-time home buyers from entering the housing market. The October 18th 2016 NAR news release (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) also cited underemployment, student debt, and delayed family formation.

The idea of a home buyer savings account is not new. It was first conceived by Montana in the 1990’s as an incentive for home buyers to save money for down payment and closing costs. Virginia was the second state to enact a similar program in 2014. Several other states have since enacted similar plans, while others (including Maryland) have proposed such plans in their respective state legislatures.

The increased attention to first-time home buyer savings account during 2017 has made it a hot topic. While states are looking to provide state tax breaks for first-time home buyers, Rep. Mike Coffman of Colorado wants to provide federal tax incentives to first-time home buyers for saving down payment and closing costs. H.R.2802 First-Time Homebuyer Savings Account Act of 2017 was introduced in Congress last June by Rep. Mike Coffman of Colorado, and co-sponsored by Rep. Sean Patrick Maloney and Rep. Barbara Comstock. The bill has yet to make it out of the House Ways and Means Committee.

Rep Coffman stated in a press release:

The American dream of homeownership is getting harder and harder to attain for those starting out on their own these days, especially Millennials, because of the challenges involved in saving up for the down payment…The First-Time Homebuyer Savings Account Act  is a straightforward and bipartisan solution to this problem. If we can help Millennials attain homeownership, this would not only be a wise financial move for them, but would have broader positive financial impact for our economy as a whole

Maryland’s proposed first-time home buyer savings plan, introduced by HB0463 and SB0972, is currently being debated in the Maryland General Assembly. If enacted as introduced, the legislation would allow $50,000 to be deposited “state tax free” into an account for the purpose of buying a home in Maryland by a first-time home buyer. Any interest earned up to $150,000 would also be state tax free, as long as the interest is also used in said purchase. However, if the funds and interest are used for any other purpose, the holder of the account would be subject to state tax and penalties.

Would a first-time home buyer savings account stimulate interest in the housing market?

Lisa Prevost, writing for the New York Times, brought attention to Montana’s struggle to get first-time home buyers to participate in their savings plan (Tax Free Accounts for Homes: nytimes.com; August 8, 2013). At the time of Prevost’s article, the Montana Department of Revenue reported that “…no more than 225 people, and as few as 125, have participated annually since the program’s inception. Their annual deposits have averaged around $400,000.” Edmund Caplis, director of tax policy and research for Montana’s Department of Revenue, was quoted in the article as saying, “What you’ve got to understand is, this is people trying to get into their first home. For most working families, trying to pull together an extra buck is a stretch.

Copyright© Dan Krell
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