Solving the Down Payment Problem

by Anthony SanFilippo

Down Payment

Legislatures across the country are considering bills that would create savings accounts for first-time homebuyers

The butterfly effect is a metaphor that originated in meteorology. The notion is that the course taken by a hurricane could be set by a minor perturbation – like a butterfly flapping its wings – thousands of miles away weeks earlier.

In short, the concept is small causes can have large effects.

New York: The Highest Closing Costs in the Country

New York may not be thousands of miles from other states in the country, and hurricanes don’t usually form in the Northeast, but there’s no doubt that when it comes to strategies to stimulate the real estate market, New York was definitely first to flap its wings… and the rest of the country is starting to feel the effect.

In 2016, the New York State Association of REALTORS (NYSAR) began a big push on the state legislature to craft a bill that would create a savings account for first-time homebuyers.

“Looking at trends across the country and specifically in New York, we saw they pointed toward a downturn in first-time buyer participation in the housing market despite historically low mortgage rates and other conditions favoring buyers,” said Mike Kelly, Director of Government Affairs for the New York State Association of REALTORS®. “For our state to grow and thrive, we need to keep our young families and individuals by helping them overcome the barriers to achieving the American Dream in the Empire State. Our NY First Home program will help them get started on the path to homeownership.”

Modeled after the state’s 529 college education savings program, the plan would be to create a dedicated, tax-free savings account that would allow New Yorkers to save money annually and apply it toward the purchase of a first home.

The legislation has been reintroduced in the New York Senate and Assembly this year and would allow individuals to save $5,000 annually and couples up to $10,000 annually with a maximum of $100,000 to be applied to the purchase of a first home.


“Many renters in their 20s and 30s don’t see a path to homeownership. That gap was lost on a lot of them. Not because of interest rates – which are still at all-time lows – but the challenge of overcoming the highest closing costs in the entire country.”


“Many renters in their 20s and 30s don’t see a path to homeownership,” Kelly said. “That gap was lost on a lot of them. Not because of interest rates – which are still at all-time lows – but the challenge of overcoming the highest closing costs in the entire country. Our research shows that more young adults after college are living in their parents’ basements today than at any time since World War II.

“We were looking for a way to assist those people with the largest financial decision of their lives and provide them incentive to get them over the finish line.”

Many millennials, who make up much of the first-time home buying population, struggle to save enough for a down payment, never mind all the closing costs, taxes and fees that come with the purchase of a home.

The struggle comes from mounting college debt, low wages, the high cost of housing in some New York communities or a combination of all three.

And research by American Strategies shows that 82% of New Yorkers support this proposal and that 84% believe that closing costs and down payments are the biggest hurdle to buying a first home.

“It makes sense for the person looking to buy because people are beginning their working life with a lot of debt and uncertainty about where they want to live,” Kelly said. “If they are considering New York we want to give them incentive to stay here.

“We have seen people leaving the state (upstate) for years. We’ve had a brain drain. For the first time in many years we had a population loss in New York in 2016 – even including New York City.”

While the cost of this savings account program would be $1.8 million for all New Yorkers in the first year, the investment would generate $431.5 million in revenue for the state and counties from real estate transaction, sales and income taxes.

“I think it’s a no-brainer,” said Kelly. “It’s an incentive not a giveaway – but it provides people with a path to home ownership and thinking about their future.”

Picking Up Stream Across the Country

Over the course of the past year, this has gained a lot of traction in New York. So much so that other state associations have begun pushing for similar legislation.

There are differences wherever you go – some allow parents or grandparents to setup the accounts for their children or grandchildren. Some allow them to contribute to the account annually as well.

Some allow for individuals or couples who have not owned a home in the past three years to also be eligible to save the money. Some allow it for the purchase of any home.

Others expand the limit of the annual contribution amount. Most have now included opening the account at any bank the individual or couple wishes – as long as they are FDIC-insured.

Proposals are already in place in states like Iowa, Minnesota, Missouri, Oregon and Oklahoma. Other states, like New Jersey and Pennsylvania are considering laying the groundwork as well.


The goal, ultimately, is to get into every state – or at least every state that needs it.


The goal, ultimately, is to get into every state – or at least every state that needs it.

Data from American Strategies shows similar support in these states as well, with 75% or more of the people polled supporting this concept.

And the elected officials are starting to take notice.

“We’re one of the first states to propose a tax deduction on savings for the purchase of a first home and there’s real interest in our state legislature,” said Kelly. “I don’t know of any known opposition, but the trick is, how do you get state lawmakers to understand that this is a revenue generator?

“We have a real estate transfer tax and a recording tax in New York – and they fund programs at state and county levels. Those revenues are generated from real estate transactions at a rate of 5-to-1 over losses from the tax deduction from the savings account. There’s a bit of skepticism because of the deduction so the challenge is still getting the attention of the Governor and state legislature that this should be a priority.”

It’s definitely a surging storm of optimism across the country that could help get more people to achieve the dream of home ownership.

A storm that started with a flap of the wings in New York.

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