The following article is a summary from the book, “Realtor for Life,” written by Duane Duggan.
BOULDER – You’ve probably heard of 529 college savings accounts. But have you heard of Colorado First Time Homebuyer Savings Accounts (FHSA)? Any Coloradan can set up a savings account to be used towards down payment and costs associated with closing.
Lack of a down payment is the primary challenge for most first-time homebuyers. A FHSA is a great way to solve that issue.
Starting in 2017, prospective Colorado first-time buyers can apply for a FHSA that was approved by the Colorado State Legislature (House Bill16-1467).
What is the benefit of setting up a FHSA?
Setting up this account allows your down payment to grow free of any Colorado taxes on any gains in the account. That is a nice benefit, but the true benefit for the first-time homebuyer is creating an automatic system for monthly contributions to the account to ensure a home purchase actually happens. It can also be a great alternative for a wedding gift. Instead of buying the happy couple a set of china that they may rarely use, why not give them a lasting, meaningful gift towards the down payment for their first home? In addition, when a baby arrives, proud parents, grandparents, or friends and relatives can set up a FHSA for the newborn as a nest egg for a home purchase when the baby becomes an adult.
How much can be put into a FHSA?
You can contribute a total of $50,000 in principal. The account can grow to a peak of $150,000 without Colorado taxes. There is an annual contribution cap of $14,000 for a single person or $28,000 for a married couple filing jointly. Best of all, there isn’t a time limit on how long the account can stay open.
What expenses can be paid from a FHSA?
First and foremost, a down payment. Funds from this account can also be applied to anything included on the settlement statement such as closing costs, inspections and lender fees.
How is a first-time homebuyer defined to qualify for an FHSA?
Obviously, it is someone who has never owned a home, but there are exceptions. If you were married, owned a home, and are now divorced for three years, you still qualify. If you were fortunate to inherit a home, you can still qualify, but you probably wouldn’t need to save for a down payment in that case. Finally, another way to qualify is that you can buy a home with someone who has owned a home, just as long as you have not owned a home before.
How do you or someone wishing to help you set up your FHSA?
Almost any kind of account you have at a financial institution can be designated as a FHSA. Examples are savings accounts, money market accounts, CDs, stocks, bonds, mutual funds and even insurance.
If you are just getting started, you can open a new account or you can designate an existing account to become your FHSA. Speak to your financial advisors or banking specialists to give you advice and take that first step.
How do I create the account for the State of Colorado?
When you file your state income taxes there will be a form to fill out along with your State Income Tax return. If you have your taxes completed by an accountant, remind them of this important financial account and the proper forms necessary.
What do I do when I have bought a house and used the funds?
Congratulations on buying that home! There will be a form to fill out that you send to the State of Colorado showing that the funds were used toward “eligible” costs.
Do I have to use a particular loan program in conjunction with my FHSA?
You can use any FHA, CHFA, VA, or conventional program. In fact, there are loan programs geared toward the first-time buyer. For example, with FHA you can apply for a low 3.5% down payment. Why not create a plan for monthly contributions to your FHSA based on saving up that 3.5% down payment by a certain time? Before you know it, you will have saved up enough to buy a home.
Be sure to consult your financial planner, accountant, mortgage loan officer and Realtor to create a plan that is just right for you!
By Duane Duggan, RE/MAX of Boulder. Duane Duggan has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: the Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail Duane at DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.