A new type of savings account will soon be available to help with first-time home buying expenses, with a pair of bills signed this month by Governor Gretchen Whitmer.
Local realtor Renee Malburg of Five Star Real Estate said the First-Time Home Buyer Savings Account is a “vessel for people…to save for a down payment on their home” .
Each year, deposits to the account are tax deductible up to $5,000 for single tax filings and $10,000 for joint tax filings. Withdrawals of funds that are used to purchase a home are tax exempt. Account balances cannot exceed $50,000.
The account is available to anyone who has not owned or purchased a single family home in the three years prior to opening an account. It can be opened at a bank, credit union, or through a financial advisor.
State Sen. Curt VanderWall, R-Ludington, who sponsored the Senate bill authorizing the accounts, said he expects them “to have a big effect.”
“I just look at my two children who bought a house in Ludington last year. It would have been a great opportunity for them,” VanderWall said. “Anything we can do to enable someone to own a home is really what we need to do.”
Malburg said the tax savings are “a small perk,” but the accounts also serve to get families talking about finances and get young people “thinking about homeownership.”
“The dream is there, home ownership, but the path to get there is not really defined,” she said. “There’s a very little spotlight on how to get to the property.”
Jamie Healy, executive director of Habitat for Humanity of Mason County, said that while the accounts “provide much-needed help to some first-time homebuyers,” they don’t help with availability or availability. housing affordability.
She also said first-time home buyers need help with more than the initial costs of home ownership.
“Owning a home involves ongoing maintenance, emergency funds, managing utilities, budgets, savings and much more,” she said. “It would be amazing to see a change in policy on investing funds in case management. We could see incredible changes in the way we operate as a society if we invest in people.
Malburg said the accounts should give first-time buyers an edge in a “very, very competitive” market that favors cash sales or conventional loans offered by private lenders.
With these types of financing, sellers see “an easier end (with) less red tape” than dealing with buyers using government-backed loans with low down payments, she said. One of these savings accounts can help a buyer save for a down payment that could make the difference.
“We have so many young people in our area that they can’t compete with the conventional money and mortgage products that other people (have),” she said. “It’s going to kind of even out the game board.”
Conventional loans and cash sales have outpaced other types of financing in this region, according to data from the West Michigan Lakeshore Association of Realtors. They accounted for 60% of transactions in 2009 and 82% of transactions over the past year.
Malburg compared the accounts to education savings accounts, which are tax-efficient ways to save for a child’s education. Parents, grandparents and guardians can also set up these housing savings accounts with children designated as beneficiaries.
Michigan has joined several other states, including Minnesota, Montana and Alabama, in offering the accounts. Similar bills allowing the accounts are being discussed in other states, including Ohio.
In a statement, Michigan Realtors President James Iodice hailed “the first dedicated new home savings vehicle in the state.”
“These accounts will help individuals and families realize their dream of homeownership, retain our talented college graduates, and promote financial literacy and smart saving,” he said.