In an effort to stimulate the state’s housing market, Virginia has enacted a new law that will allow first-time homebuyers to invest up to $50,000 in financial institutions and declare them first-time homebuyer savings plans.

Any gains or earnings on those investments would be free of state taxes, and the funds can be used for down payments and closing costs on first home purchases in the state.

According to the law, almost any account that a borrower can have at a financial institution like credit unions and banks or directly in mutual funds, brokerage accounts, or almost any other financial vehicle can be used as a homebuyer savings plan. Stock purchases are also eligible.

The Virginia Association of Realtors championed the legislation and said the law, called First-time Homebuyer Savings Plans HB331, is designed to “help Virginians prepare for homeownership, remind them how important it is, and improve the long-term health of the housing market.”

The maximum principal investment is $50,000 and the account can grow in value up to $150,000, and the tax-free proceeds can be used for “just about anything related to closing on a home,” which includes anything on the settlement statement, such as: closing costs, inspections, lender fees and other closing-related charges.

Any resident who has never purchased a single-family home, condo, co-op, townhouse or mobile home is eligible for the program. Even if the resident has owned a home without purchasing it, i.e. through an inheritance, is eligible.

“The need for these plans has become clear. Issues such as tighter mortgage loan requirements and increasing student debt are making it more difficult for young adults to enter the world of homeownership,” said VAR president Bradley Boland.

“We knew we needed to be proactive,’” Boland said. “We needed to help people not only understand the expense of buying a home, but prepare for it as well. This bill is one way we are supporting the housing market, and maybe smoothing some of the speed bumps on the road to homeownership.”

Additionally, family members are eligible to put money into a first-time homebuyer savings plan as long as the money will be used for a first-time buyer in the future.

Contributions can be made all at once or over time.

“By supporting this plan, Virginia re-enforces the commitment we have to our younger citizens, our families, and the overall recovery of the housing market,” said Virginia Delegate Tag Greason, patron of the bill.