If you plan to make a gift of this size, you can help the recipient purchase their first home using the Colorado First-Time Homebuyer Savings Account (FHSA). Similar to a 529 College Savings Plan, the FHSA allows any Colorado resident to set up an account specifically to save for a down payment and closing costs.

The lack of a down payment is one of the biggest barriers for first-time homebuyers, and an FHSA is an excellent way to address this challenge. Introduced in 2017 through Colorado State Legislature (House Bill 16-1467), the program enables eligible first-time buyers to save for their home purchase more effectively.

What is the benefit of setting up a First Time Homebuyer Savings Account (FHSA Account)?

Setting up a Colorado First-Time Homebuyer Savings Account (FHSA)  account allows your down payment to grow free of any Colorado taxes on any gains in the account. While that’s a nice perk, the real benefit lies in creating an automatic system for monthly contributions, ensuring consistent savings toward a down payment.

This account can make a meaningful and unique gift during the holidays. It’s also a thoughtful alternative for a wedding present – rather than giving the happy couple a set of rarely used china, why not contribute to their FHSA and help them buy their first home? Similarly, when a baby arrives, parents, grandparents, or close family and friends can set up an account as a “nest egg” for the child, giving them a head start toward homeownership.

How much can be put into a FHSA?

You can contribute up to $50,000 in principal to a Colorado First-Time Homebuyer Savings Account (FHSA), and the account can grow tax-free up to a maximum of $150,000. Annual contributions are capped at $14,000 for individuals and $28,000 for married couples filing jointly. Best of all, there’s no time limit on how long the account can remain open.

What better way to prioritize saving for a down payment! Plus, funds from this account can also be used for other expenses listed on the settlement statement, such as closing costs, inspections, and lender fees.

How is a first-time homebuyer defined to qualify for an FHSA?

While a first-time homebuyer typically refers to someone who has never owned a home, there are exceptions! If you were married, previously owned a home, and have been divorced for at least three years, you still qualify. If you inherited a home, you’re also eligible – though in that case, you may not need to save for a down payment. Lastly, you can purchase a home with someone who has owned property before, as long as you have never owned a home yourself.

How do you, or someone wishing to help you, set up your FHSA?

Almost any type of account you can set up at a financial institution can qualify as a First-Time Homebuyer Savings Account (FHSA). Examples include savings accounts, money market accounts, CDs, stocks, bonds, mutual funds, and even certain insurance products.

If you’re just starting out, you can open a new account, or you can designate an existing account as your FHSA. Be sure to speak with your financial advisor or banking specialist for guidance and take that first step!

How do I create the account for the State of Colorado?

When filing your state income taxes, you’ll need to include a specific form along with your State Income Tax return. If a tax professional prepares your return, be sure to remind them about this important financial account and ensure the correct forms are completed.

What do I do when I have bought a house and used the funds?

Congratulations on purchasing your new home! You’ll need to complete a form and submit it to the State of Colorado to confirm that the funds were used for “eligible” costs.

Do I have to use a particular loan program in conjunction with my FHSA?

You can use any FHA, CHFA, VA, or conventional loan program to purchase your home. In fact, there are loan options specifically designed for first-time buyers. For example, with an FHA loan, you can get started with just a 3.5% down payment. Why not create a plan to make monthly contributions to your FHSA with the goal of saving that 3.5% down payment by a specific date? Before you know it, you’ll have saved enough to buy your first home!

Be sure to consult with your financial planner, accountant, mortgage loan officer, and Realtor^® to develop a plan tailored to your needs.

Duane graduated with a business degree and a major in real estate from the University of Colorado in 1978. He has been a Realtor^® in Boulder since that time. He joined RE/MAX of Boulder in 1982 and has facilitated over 2,500 transactions over his career. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail duaneduggan@boulderco.com, call 303.441.5611 or BoulderPropertyNetwork.com