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First-Time Homebuyer Savings Account

posted by Heather Fegan | Jan 30, 2017


By incentivizing saving for a down payment, the proposed First-time Homebuyer savings program could help thousands of Iowa residents become homeowners for the first time.

  • Based upon 3,317 potential new first-time home buyers estimated to participate in this program over a five-year period: it is estimated that 166 households (or five percent) will purchase newly constructed housing units and the remaining 3,151 households will purchase existing housing units.

  • In 2009, 53 percent of all home sales in Iowa were to first-time home buyers. In 2015, first-time home buyers made up only 41 percent of sales in the state.

  • Statewide, the tax revenues associated with home ownership generated by homebuyers purchasing a home for the first time are estimated to bring in $1.99 in new revenues to the State of Iowa and/or its counties for every $1.00 that the proposed first-time home buyer income tax deduction legislation will require in program implementation.

  • In the State of Iowa, like in many places around the country, potential first-time homebuyers continue to face obstacles to home ownership. Rising household debt, credit concerns, and affordability challenges, make saving for a down payment a major hurdle to home ownership.

  • The fiscal benefits of the proposed legislation include benefits that accrue directly to the state, as well as new revenue to the counties. The estimated 3,317 potential new first-time home buyers are estimated to pump an additional $6.2 million annually into the Iowa economy as a result of additional spending associated with home ownership. These new tax revenues would come from five sources:            

(1) sales taxes collected on the purchase of goods such as furniture, fixtures, and appliances from first-time home buyers participating in this new down payment savings incentive program; It is estimated that $1,047,339 in sales tax revenues will be generated by the estimated 3,317 potential new first-time homebuyer households in Iowa over the five-year period.  The First Time Homebuyer legislation is estimated to create a net increase of $2,077 in new annual household spending by each household that switches from renter-occupied to owner-occupied housing.

(2) real estate property taxes on new housing constructed and purchased by first-time home buyers;

(3) real estate transfer taxes on the housing units (both existing and new) purchased by these first-time home buyers; over $800,000 generated in five years.

(4) income taxes on personal earnings generated by workers building these new houses; Creating approximately 357 new construction and construction related jobs for the construction of 166 new housing units for first time home buyers. 

(5) income taxes on personal earnings generated by workers supported by the annual increase in household spending attributed to first-time home buyers.


Edited February 1st- HF

The IAR will support legislation that gives first-time homebuyers the opportunity to invest in their future. 

The bill creates a new State income tax exemption for qualified deposits to a First-time Homebuyer Savings Account. The assets of an account are to be used for the down payment and allowable closing costs associated with the purchase of a home. Withdrawals from the account are tax-free as long as the money is used for a down payment and closing costs for a single-family, owner-occupied home in Iowa.

 The legislation will create a First-Time Homebuyer Savings Account program:

  •  A first-time homebuyer - and parents/grandparents of a first-time homebuyer- would be able to receive an income tax exemption for savings up to approximately *$2,000/year for up to 10 years, or $4,000/year for two first time homebuyers who file taxes jointly

*This amount was edited February 1st to make it more palatable to the budget committee. It was originally $3,200/year or $6,400/year.

  •  Applied to the purchase of a property located anywhere in Iowa
  • The funds can be used for closing costs and down payment on a principal residence in Iowa
  • The first-time homebuyer is required to set up an account with an Iowa bank or credit union to be used to purchase a home in Iowa
  • The first-time homebuyer will be responsible for the accuracy of the account and filing reports with the Department of Revenue
  • No penalties for early withdrawal if used for the purchase of a home in Iowa
  • Income tax and minimal penalties would apply for withdrawal of monies if not used for the purchase of a home in Iowa
  • False claims or statements are a serious misdemeanor and subject to fines


All figures provided by: Lisa Sturtevant & Associates, LLC, and Urban Analytics, Inc. 

Contact your Legislators and tell them why it is important for Iowa to keep first-time homebuyers in Iowa!

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