Mississippi joins a handful of states helping first-time homebuyers save for down payments
Aug 30, 2017
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 the accounts with financial institutions listed on www.firsthomems.com. 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 As long as the money remains in the account (or is withdrawn for eligible expenses), it is not subject to income taxation at the state level.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®, which advocated with the state legislature to pass the new law. “And that path is now less than 18 months for the average Mississippian,” he says.