New First Time Homebuyer Savings Account Program for Michiganders
By Beth Flynn
If you’re thinking about buying a new home for the first time you may feel overwhelmed by the frenzied state of the housing market. Homeownership might seem out of reach to you because of rising home prices, inflation, and interest rates. You may also wonder how your children or grandchildren will afford their first home in a few years if the market keeps up its current pace. The good news is that there is help out there for Michiganders when it comes to purchasing their first home, thanks to the First Time Homebuyer Savings Account.
What is a First Time Homebuyer Savings Account?
The Michigan First Time Homebuyer Savings Account (FHSA) is a dedicated savings program that allows account holders to save money tax-free towards a new home. New Michigan legislation went into effect in January of 2022 creating the program. It’s similar in design to the state’s tax-free education savings program. Most, if not all, money contributed to an FHSA is exempt from state income tax. Account holders also receive tax-free gains on interest from their savings.
Who is Eligible for a First Time Homebuyer Savings Account?
Any Michigan resident who has not owned or purchased a single-family home, individually or jointly, in the past 3-years is eligible for the program. You can also open an account and contribute money for someone else to buy a home. Parents, grandparents, and guardians can select a qualified beneficiary, such as a child or grandchild. Additionally, you can open more than one FHSA, as long as each account has a different qualified beneficiary. Opening an account for a family member is a great way to contribute to their future and enjoy tax savings at the same time.
How Much Can You Save?
Single account holders can contribute up to $5,000 a year to each account. The contribution goes up to $10,000 a year for joint account holders. The maximum lifetime contribution is $50,000. After the threshold is reached, the account continues to grow with tax-free interest. Contributions are tax deductible for up to 20 years. Tax deductions are received by declaring the FHSA on your tax return each year.
What Can the Funds be Used for?
When you’re ready to use the funds to purchase a home for yourself or a beneficiary, the money in the account can be used to cover the down payment, closing costs, and other fees associated with the purchase. Any money withdrawn from the account will be tax-free as long as it’s used towards the purchase of a new home. Money withdrawn and used for any other purpose may be subject to a fee.
How Do You Open a First-Time Homebuyer Savings Account?
You can open an FHSA at any bank, credit union, or investment firm. You can also designate an existing account as an FHSA and enjoy the same tax savings.
Michigan’s First Time Homebuyer Savings Account program is a great tool to make homeownership more attainable for yourself or your family members.