Coming up with the funds for a down payment and all the associated closing costs isnt easy, but Virginia has just released a new plan that offers some assistance. It’s called a First-Time Homebuyer Savings Plan and allows up to $50,000 to be set aside in an interest bearing account that will be exempt from Virginia state taxes indefinitely. The Feds will still take their fair share but the 2-5.75% (depending on income level) that VA would normally get is yours to keep free and clear.

In order to qualify at least one person involved in the home purchase must be a first time homebuyer. Each year you must indicate your FHSP account’s tax free status along with your taxes. Currently, there is no time limit on how long the account can exist. The account(s) can be a variety of mutual funds, CDs, stocks, bonds, money markets, insurance, even a regular savings account. You’re only limited by a $50k max contribution over the course of the plan. Total, the principal and interest can not exceed $150k.

Sounds great right? Two things to keep in mind. The funds must eventually be used to actually buy a house. The state will want you to prove you purchased a home and used the funds for what they call “eligible costs”. These can be anything to do with the homebuying process including down payment, closing costs, appraisals, inspections, title work, settlement fees, etc. Expect to file this information the year your home purchase goes through. Now, if for some reason you blow all the money on a new car and don’t buy a home you will need to retroactively pay taxes as well as a 5% penalty.

Every little bit counts and if you have an opportunity to hold on to a bit more of it you should take that advantage.

If you have any questions, feel free to ASK RON.