Helpful Tools for First-Time Homebuyers

Given the increased cost of living and high interest rates seen across Canada, the barriers to first-time home ownership seem higher than ever. Fortunately, there are a couple of federal programs to help put home ownership within reach of first-time buyers.

Home Buyers’ Plan

For many first-time homebuyers, coming up with a down payment is a giant hurdle. The Home Buyers’ Plan aims to make this a little easier by allowing Canadians to withdraw up to $60,000 from their RRSPs, tax-free, to purchase or build a first home. 

There’s a bit of fine print to keep in mind with this program, including: 

• You must meet the federal government’s criteria for a first-time home buyer. This means that you did not occupy a home that you owned or that your current spouse or common-law partner owned in the four years prior to your home purchase.
• You must have a written agreement to buy or build a qualifying home. A mortgage pre-approval does not count.
• You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. 
• You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP account. Some RRSPs, such as locked-in or group RRSPs, do not allow you to withdraw funds from them. 
• You cannot use any amount transferred from your First Home Savings Account (FHSA) to your RRSP for HBP purposes and you cannot repay your HBP withdrawals into your FHSA.
• You must return the amount you withdrew back into your RRSP within 15 years. 
• You can cancel your Home Buyers Plan participation under certain conditions.

The First Home Savings Account (FHSA)

A self-directed First Home Savings Account (FHSA) is a registered savings account for first-time home buyers to grow their savings, tax-free for the purchase of their first home.

An FHSA combines some features of an RRSP and TFSA and allows prospective first-time home buyers to contribute $8,000 per year to a maximum of $40,000 over 15 years. Contributions to an FHSA will be tax-deductible like and RRSP. When a qualifying withdrawal is made, the amount withdrawn is non-taxable, like a TFSA.

Similar to a TFSA, unused contribution amounts can be carried forward to the next year, making your yearly savings goals work for you. Once you've purchased a home, any unused savings can be transferred from your FHSA into an RRSP or RRIF tax-free.

The fine print:

• You must meet the federal government’s criteria for a first-time home buyer. This means that you did not occupy a home that you owned or that your current spouse or common-law partner owned in the four years prior to your home purchase.
• You are a resident of Canada and between the ages of 18 and 71 as of December 31 the year you open your FHSA.
• Withdrawals are subject to a few rules:
• You must be a first-time home buyer for the purposes of making a qualified withdrawal.
• You must have a written agreement to buy or build a qualifying home with the acquisition or completion date of the qualifying home before October 1 of the year following the date of the withdrawal.
• You must not have acquired the qualifying home more than 30 days before making the withdrawal.
• You must be a resident of Canada and plan to occupy the qualifying home as your principal place of residence within one year after buying or building it.
• You cannot cancel a qualifying withdrawal from your FHSA once it has been made.

You can withdraw amounts from your RRSPs under the Home Buyers' Plan and make a qualifying withdrawal from your FHSA for the same qualifying home as long as you meet all of the conditions at the time of each withdrawal.