Wisconsin Could Help Potential First-Time Homebuyers Save
Saving for a down payment and closing costs to buy a home is a difficult endeavor for some in today’s economy.
It’s especially hard for those trying to purchase a home for the first time.
With many potential first-time homebuyers dealing with crushing student loan debt, coupled with the rising costs of housing, housing decisions are being severely impacted.
Homeownership levels are down, especially in Wisconsin. Many people feel their only path to having a roof over their heads is to rent.
Even then, it’s a vicious cycle for renters. Approximately 12 percent of renters have zero savings or retirement accounts and the median value of assets for the remainder of renters is a mere $3,000.
With a median-priced home in Wisconsin requiring $9,250 for a five percent down payment, it’s crystal clear as to why it’s such a hurdle for renters to buy a home for the first time.
But help could be on the way.
The Wisconsin legislature is considering a bill that would create a First-Time Homebuyer’s Savings Account – a tax-free savings account for individuals or couples trying to buy their first home in Wisconsin.
This concept has already been adopted in several other states (Alabama, Colorado, Iowa, Minnesota, Mississippi, Missouri, Montana, Oregon and Virginia) and is designed to not only help Wisconsinites purchase a home, but it will also stimulate the state economy.
If people can afford to live in Wisconsin, then they are more likely to stay in-state or move into the state for a job opportunity that makes sense financially.
More homeowners also means more investment into communities and neighborhoods, which in turn increases the tax base and allows for more school funding, better safety, and more infrastructure improvements.
Every state that has adopted this savings account is structured a little bit differently, but the purpose is the same – to allow people the opportunity to save what’s needed to buy a home without being subjected to taxes.
In Wisconsin, the plan currently would allow any individual or couple who has never owned a home or those who have not owned a home in the previous three years to open an account at any financial institution that cannot be taxed by the state, nor can any of the interest or capital gains be taxed. This money can stay in the account for up to 10 years and must be used toward the purchase of a home.
Individuals will be allowed to deduct up to $5,000, or $10,000 if filing a joint income tax return, each year to a maximum of $50,000.
Anyone can contribute to the savings account – so parents and grandparents, for example, can contribute money for their children or grandchildren, but only contributions made by the prospective homebuyer(s) are eligible for the tax deduction.
To guarantee that the money is spent to purchase a home, once the savings account is opened, a home must be purchased within 10 years. Failure to do so will result in the closing of the account and the money returned to the prospective homebuyers.
Much like withdrawals from other savings or retirement accounts, any withdrawal from the account for any purpose other than a down payment on a home results in a 10 percent penalty plus capital gains on the amount withdrawn.
This savings account is also designed to address the workforce housing shortage in Wisconsin.
Some individuals in Wisconsin can’t afford to live close to their place of employment, making for longer commutes, creating unnecessary traffic and after frustration mounts, creating a problem for employers to retain talent.
Having this account will ease that burden by making it easier for these Wisconsin workers to find affordable housing options.
Wisconsin is experiencing all-time lows with its housing inventory while median home prices continue to increase, and rents are increasing faster than wages.
While the First-Time Homebuyer Savings Account won’t correct this workforce housing dilemma all by itself, it can begin the process of reversing the negative trends that the state is facing.
It will certainly create a boost in home sales and new construction, which is always a boon for any economy, but it will also create jobs, increase revenues and create economic stimulation across the state.
According to data from the Wisconsin REALTORS® Association:
- Real estate is the second largest industry sector in Wisconsin, accounting for 15.8 percent of the gross state product, 380,000 jobs, and producing approximately $18 billion in personal earnings in 2017.
- New residential construction alone employs 126,000 people and generates $5.6 billion in earnings, which account for 5.1 percent of the employment and 4.8 percent of the earnings in Wisconsin.
- Every new single-family home built creates three jobs and generates $89,000 in federal, state and local revenues.
- For every home sold in Wisconsin, $16,443 of income is generated from real estate-related industries — such as brokerage, mortgage lending, title insurance and appraisal — and one job is created for every two homes sold.
- With every new home purchased, owners spend approximately $5,171 on average on furniture, appliances, lawn care equipment or services.