Saving for a first home is hard enough without the tax collector taking a slice of your progress. A first-time homebuyer savings account is one tool that can help, letting you set money aside for a down payment while trimming your state tax bill.
These accounts are not offered everywhere, and the rules vary by state. Here is how they work, which states have them, and how to actually put one to use.
What Is a First-Time Homebuyer Savings Account?
A first-time homebuyer savings account, sometimes called an FHSA, is a state-created savings account meant for future home purchases. You contribute money over time and, in many states, deduct some of it from your state taxable income.
The account itself is usually a normal savings or money market account at a bank or credit union. What makes it special is the state tax treatment, not a unique financial product.
Keep one thing clear: this is a state program. The federal first-time homebuyer tax credit expired after 2010 and is no longer available, so any tax break here comes from your state.
How the Tax Break Actually Works
In participating states, you can typically deduct or subtract your contributions, and sometimes the interest earned, from your state income taxes. That lowers your taxable income for the year.
The savings can then be spent on qualified costs like a down payment and eligible closing costs when you buy. Because the tax rules differ, the size of the benefit depends entirely on where you live.
This is not tax advice, and rules change often. Confirm the current details with your state revenue department or a tax professional before you rely on any deduction.
Which States Offer First-Time Homebuyer Savings Accounts
Several states have created these programs, each with its own limits. The table below shows a few examples as of 2026.
| State | Tax benefit (as of 2026) | Notable limits |
|---|---|---|
| Oregon | Subtract up to $6,285 single or $12,570 joint per year | Up to 10 years, capped at $50,000 single / $100,000 joint |
| Iowa | Deduct contributions (inflation-adjusted cap) | Designated beneficiary required |
| Minnesota | Subtract interest and dividends earned | Account earnings focus |
| Virginia | Subtract account income like interest and gains | Federally taxed income only |
| Colorado | Deduction available for contributions | State-specific caps |
| Connecticut | New program effective Jan 1, 2026 | Deductions begin with 2027 tax year |
Other states have introduced or expanded similar programs, so check your own state even if it is not listed here. The specifics, including annual caps and time limits, are set state by state.
What the Money Can Be Used For
Qualified uses generally include the down payment on your first home and eligible closing costs. Some states also count certain fees tied to the purchase.
The home usually must be your primary residence, and "first-time buyer" often means you have not owned a home in a set number of years, not just ever. Definitions vary, so read your state's rule.
If you pull money out for non-qualified reasons, many states claw back, or "recapture," the tax benefit and may add a penalty. Use the account for its intended purpose to keep the break.
Rules and Limits to Know
Most programs cap how much you can contribute or deduct each year, and some cap the account's lifetime total. Oregon, for example, limits the tax benefit to 10 years or a $50,000 aggregate for single filers.
You often need to name a designated beneficiary, which can be yourself or another future first-time buyer. Some states let parents or grandparents open a savings account for a child.
Keep good records. States typically want documentation showing contributions and that withdrawals went toward a qualified home purchase.
Where to Open and Grow the Money
Because the account is usually a standard savings account, you want a high-yield savings account that pays a strong APY, so your down payment grows faster while it sits. Over a few years, compound interest on that balance can add a meaningful amount. Check whether your state requires the account at a specific institution or lets you choose.
Chime offers a savings account with disclosed APYs up to 3.75% for eligible members with qualifying direct deposits as of April 2026, with no monthly fee, which can help a down-payment fund grow. Deposits are held in FDIC-insured partner banks, and rates are variable.
Chime
Chime
- Fee-free banking plus early pay access (up to 2 days early with direct deposit)¹ - Overdraft up to $200 without fees for eligible members¹ - 5% cash back on category of choice (with qualifying direct deposit)¹ - 3.75% APY on your savings¹
Standout feature
No credit check, no interest, no annual fee, and no minimum deposit required.
Fees
$0
Pros
Fee-Free Banking and Get paid up to 2 days early
Cons
App/online-only support, no branches
Current Banking is another option that shows your balance in real time and pairs saving features with everyday checking, also holding deposits in FDIC-insured partner banks. If your state ties the tax benefit to a specific account type, confirm that your chosen account qualifies before you count on the deduction.
Current Banking
Current Banking
Current is a mobile-first banking app with no monthly fee and no minimum balance. Members can earn up to 4.00% APY with a qualifying direct deposit of $200, receive direct-deposit paychecks up to 2 days early, and overdraft up to $200 fee-free.
Standout feature
4.00% APY on Savings Pods (with a $200+ qualifying direct deposit) plus paycheck up to 2 days early — both included on the standard account for free
Fees
Free
Pros
$0 monthly fee; up to 4.00% APY on Savings Pods with qualifying direct deposit; paycheck up to 2 days early;
Cons
No physical branches
Build Your Credit Before You Buy
A bigger down payment helps, but your credit score decides your mortgage rate. Even a small rate difference can cost or save you thousands over a 30-year loan.
If your credit needs work before you apply, focus on paying every bill on time, keeping your credit card balances low, and avoiding new debt in the months before you apply for a mortgage. Building a steady, positive payment history while you save, and keeping tabs on your progress with free credit monitoring, can help you qualify for a better rate when you are ready to buy.
Frequently Asked Questions
Is there a federal first-time homebuyer savings account?
No. The federal first-time homebuyer tax credit expired after 2010, and there is no federal FHSA. The savings account programs that exist today are created and administered by individual states.
What can I spend a first-time homebuyer savings account on?
Generally the down payment and eligible closing costs on your first primary residence. Using the money for non-qualified purposes can trigger recapture of the tax benefit plus a possible penalty, so check your state's rules.
Do I have to be a true first-time buyer to qualify?
Often "first-time" means you have not owned a home within a set number of years, not never at all. Definitions vary by state, so confirm your state's exact eligibility rule before opening an account.
How much can I deduct with a first-time homebuyer savings account?
It depends on your state. Oregon, for example, lets single filers subtract up to $6,285 per year in 2026, while other states set different caps. Check your state revenue department or a tax professional for current limits.
