First-Time Home Buyers
In May, according to the Daily Reporter, former Iowa Gov. Terry Branstad signed Senate File 505, known as “The First Time Home Buyer Savings Program.” The new bill will go into effect Jan. 1 and offer a way for a family to help first-time buyers purchase a home. The program will allow individuals to open savings accounts designated for first-time home buyers.
First time home buyers are defined as “Iowa residents who have not owned a single-family residence for at least three years before the home purchase for which the account’s funds are applied.” After opening an account, the account holder can then deduct from the individual income tax the amount of contributions made during the year by the account holder. The amount deducted may not exceed $2,000 a year or $4,000 a year for married taxpayers with a joint account.
First-Time Home Buyers
“The original intent (of the bill) is to help young people or first time home buyers have another avenue to put money away, like a grandparent or a parent of a child. They may want to put some money away to help them out and get a tax benefit. It will be an opportunity to help a family member get a good down payment and get into their house sooner rather than later,” said Doug Benjamin, president of Northwest Bank.
Other caveats of the bill state the funds must be used to buy a property in Iowa — if not holders and accounts may be subject to penalty — there is no limit to the amount retained in each account, interest on the account is non-taxable, and the account cannot be deducted on federal taxes.
The way it works, for example, you want to help your daughter or grand-daughter buy their first house. You open an account and have the child as a beneficiary. Then you add $2,000 per year to the account. The money accumulates tax-free, and you get a state tax deduction of $2,000.
That could eliminate the major impediment buying that first house: the down payment.
While your daughter or son is accumulating the down payment, help them get prepared by encouraging them to clean up their credit score or build up their credit. Many millennials don’t have any credit or credit card.
As we said in First Time Home Buyers, there are many things to know about buying a house. You can help by guiding them through the process.
Then talk to a banker and see if you’re ready. If not, they’ll give you the tips to get you approved in the future. A lot of programs are available for first-time home buyers. Don’t be afraid to see a banker.
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