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What is a First Time Home Buyer Savings Account?

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What is a First Time Home Buyer Savings Account?

A first-time home buyer savings account is a tax-advantaged savings account that incentivizes home buyers to save toward their future home purchase. Funds saved in these accounts can be applied, on a tax-advantaged basis, toward the down payment and closing costs of your first-home. Whether you have access to these accounts will vary by your state of residence.

If you’re saving up for your first home, your state may have launched its own First-Time Home Buyer Savings Accounts for down payments and other eligible expenses. In this article, we cover where these accounts are currently offered, the associated tax benefits and how you can set up your own tax-advantaged home buyer savings account. Legislation for these accounts is currently ongoing in multiple states, so check back regularly if you don’t see yours mentioned.

How Do First-Time Home Buyer Savings Accounts Work?

First-Time Home Buyer Savings Accounts, or FHSAs, help home buyers save for their first home purchases on a tax-advantaged basis. Money in these accounts can be used for down payments and eligible closing costs , including origination fees, underwriting fees, title and escrow fees and more. Individual states differ on what can and cannot be deducted, however once the funds are used, another form must be filed with the state, showing that the funds were used for approved purposes.

It’s a good idea to make sure you budget appropriately to ensure you won’t need to draw http://rapidloan.net/payday-loans/over-the-phone-payday-loans/ on your FHSA in an emergency. If the money in these are accounts is withdrawn and used for a non-qualified purpose, or any expense not related to your home purchase; the withdrawn funds will be declared taxable, and the offender will be charged a withdrawal penalty of 5%–10% of the withdrawn amount. Penalties may vary by state.

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