What is a First-Time Home Buyer Savings Account?

Written by Zach HewkeUpdated: 28th Dec 2021
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With the housing market skyrocketing across the country and hedge funds buying up single-family homes by the droves, first-time homebuyers can use any competitive edge they can get.

Most people have heard of the different types of mortgage programs such as FHA, VA, and USDA, but many still struggle with saving up for their down payment and associated closing costs.

This is where a first-time home buyer savings account (FHSA) can come in handy. Read on to find out what a First-Time Home Buyer Savings Account is, how it works, and whether it is of value to you.

What Is a First-Time Home Buyer Savings Account?

A first-time home buyer savings account is a special type of tax-advantaged savings account that assists and incentivizes first-time buyers to save up to buy a house.

The money set aside in these tax-advantaged accounts can be put towards the down payment and closing costs associated with buying your first home.

Unfortunately, there hasn’t been any federal legislation passed on FHSA’s yet, so not all states have access to them. However, we’ve detailed below which states offer them!

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How Do First-Time Home Buyer Savings Accounts Work?

A first-time home buyer savings account works almost exactly like a 529 college savings plan, except you’re saving for a home instead.

When using an FHSA, you contribute after-tax dollars to the account, and your savings will grow tax-free.

Once it comes time to buy your first home, you can put the money in your first-time home buyer savings account towards your down payment and closing costs without incurring any taxes or penalties.

When you create a first-time home buyer savings account, you should make sure that you won’t need your contributions in the case of an emergency.

If you withdraw funds from your FHSA to pay for anything other than your down payment or associated closing costs, then you will have to pay the penalty.

Penalties vary by state, but generally, you can expect to pay anywhere between 5-10% on top of any income taxes you may owe.

On the other hand, if you’re getting some extra cash at the end of the year and are looking for some tax deductions, an FHSA could be a great vehicle for decreasing your taxable income.

Many states allow you to deduct at least some of your contributions to your FHSA each year. So, setting some money aside in an FHSA could be a win-win; you get to save money for a house and reduce your tax burden!

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Pros and Cons of First-Time Home Buyer Savings Accounts

While FHSA’s sound great (and are), they do come with some drawbacks too. We’ve outlined some of the best and worst features that first-time home buyer savings accounts have below:


  • Some states allow brokerage accounts to be used as first-time home buyer savings accounts.
  • Many states allow you to deduct some of your contributions from your taxable income.
  • Most states don’t have a time horizon on when funds need to be spent, so you can start saving early!


  • If you don’t use the funds in your FHSA for qualifying expenses, you will incur a penalty
  • Most states cap contributions, making them less useful in high cost of living areas
  • They’re not available nationwide yet, so you might not even be eligible for the program

Who Qualifies for a First-Time Home Buyer Savings Account?

Generally speaking, almost anyone who has never purchased a home before qualifies for an FHSA.

Although they were designed to help younger folks who are dealing with rising housing costs, and student debt, there aren’t any age ceilings on FHSA’s.

Additionally, some states have a rather loose definition of a “first-time” home buyer. Depending on your state, you may be eligible for an FHSA even if you inherited a home or lost your home in a divorce.

Each state has a different definition of a “first-time” home buyer, so you should carefully check your state’s laws and consult with a tax professional before opening an FHSA.

Doing so may cost some time and/or money upfront, but making an uninformed decision could cost you thousands!

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How Do You Get a First-Time Home Buyer Savings Account?

Like we mentioned before, each state handles its first-time home buyer savings accounts differently, so the process may vary in your state. However, you can open a first-time home buyer savings account at almost any bank.

Although an FHSA shares many similarities with a 529 plan, they differ in opening the account.

When opening a 529 account, you can simply go online or to a physical location and open one up. If you want to open an FHSA, though, you typically have to open a normal savings account with a bank and file a form with your state, designating that savings account as an FHSA.

Note: Some states (like Virginia) allow you to use a brokerage account as a first-time home buyers savings account. This means that you can seriously leverage your savings through the power of compound interest and the stock market.

Which States Currently Offer Home Buyer Savings Accounts?

Today, Alabama, Colorado, Idaho, Iowa, Minnesota, Mississippi, Montana, Oregon, and Virginia all have first-time home buyer savings account options for their residents.

However, not all FHSA programs were created equally. So, we encourage you to take a look at your state’s most recent news on their FHSA program and consult with a tax professional if you have any questions.

Will More States Consider Offering Home Buyer Savings Accounts?

With the rising cost of housing and the rapidly growing student debt crisis, states across the country are being forced to find ways to make homeownership more attainable.

And first-time home buyer savings accounts are undoubtedly a great way to help out first-time buyers and encourage saving. This is why many states are looking into creating their own FHSA programs.

Louisiana, Massachusetts, Michigan, Missouri, Nebraska, New Jersey, New York, and Pennsylvania have all introduced bills that would make FHSA’s available to their residents.

Keep in mind, FHSA’s are a rather new type of account, and there isn’t any sort of federal legislation around them.

This means that individual states are likely to drag their feet when introducing legislation around FHSA’s.

If you want to see an FHSA program in your state, don’t be afraid to reach out to your local representative and let them know!

Bottom Line: What Is a First-Time Home Buyer Savings Account?

First-time home buyer savings accounts can be an incredible tool if used right. As long as you know how much you will be spending on down payment and closing costs, you can potentially save a lot of money.

Unfortunately, they aren’t offered in every state, but they are a fairly new type of account, so many states have plans to adopt them in the near future.

If FHSA’s aren’t offered in your state right now, be sure to check back for any developments every once in a while.

There are quite a few states considering legislation around FHSA’s as you read this. A simple Google search could just save you a bunch of money and get you into your dream home!

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Zach Hewke
Zach Hewke

Zach Hewke is a Personal Finance Writer who holds a Bachelor’s degree in Mechanical Engineering from Clarkson University. He is a personal finance expert who specializes in Mortgages and helping consumers land the home of their dreams. Zach’s area of expertise is mortgages, credit cards, and generation z personal finance.