Buying your first home can feel like a huge challenge—especially with the down payment, closing costs, and everything else that comes with it. But did you know there are two awesome programs available to help you save for that big purchase? The First Home Savings Account (FHSA) and the Home Buyers’ Plan (HBP) can give you a serious leg up in your journey to homeownership. Here’s a breakdown of how they work, and why you should consider using both.
What’s the FHSA?
The First Home Savings Account (FHSA) is a new account that lets first-time homebuyers save for a down payment with some pretty sweet tax benefits. It’s kind of like a mix between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), but specifically designed to help you buy your first home.
Why the FHSA Rocks
- Tax-Deductible Contributions
Like an RRSP, you can deduct what you contribute to your FHSA from your taxable income. For 2024, you can put in up to $8,000 a year, with a lifetime contribution limit of $40,000. This means you get a break on your taxes, which could mean a nice refund that you can put right back into your savings. - Tax-Free Withdrawals
When you’re ready to buy, you can withdraw your FHSA savings tax-free—just like a TFSA. That includes any interest or investment gains. It’s a huge win because you don’t lose any of your savings to taxes when it’s time to use it for your home. - Investment Growth
Unlike a regular savings account, the FHSA lets you invest in things like stocks, bonds, and mutual funds. So, your money has the potential to grow faster, which can make hitting your down payment goal a lot easier. - Save Over Time
You don’t have to rush to max out your contributions every year. If you can’t contribute the full $8,000 one year, you can carry over any unused contribution room to the next year. This means you have the flexibility to save at your own pace.
What’s the HBP?
The Home Buyers’ Plan (HBP) is another handy tool for first-time buyers. It lets you withdraw up to $60,000 from your RRSP to help with your down payment. If you’re buying with a partner, they can also withdraw $60,000 from their RRSP, meaning you could access up to $120,000 in total.
Why the HBP is Great
- Access Your RRSP Funds
With the HBP, you can pull money from your RRSP to use for your down payment—without paying any taxes on the withdrawal (as long as you repay the amount over 15 years). It’s a great way to access funds you’ve been saving for retirement, without having to wait until retirement! - Flexible Repayments
The HBP lets you repay your RRSP withdrawals over 15 years. If you miss a repayment, it gets added to your taxable income for the year, so it’s important to stay on top of it. But the long repayment period gives you plenty of flexibility. - Works Well with the FHSA
You can use both the FHSA and the HBP together to save and access more money for your down payment. For example, you could use the FHSA to grow your savings tax-free, and then tap into your RRSP for even more funds. This one-two punch can help you build up a much larger down payment.
How the FHSA and HBP Work Together
By using both the FHSA and the HBP, you can make saving for your down payment a lot easier. Here’s how it might work:
- FHSA for Tax-Free Savings: Contribute to your FHSA to take advantage of the tax deductions and tax-free withdrawals. This allows your savings to grow without being eaten up by taxes. Plus, you can contribute up to $8,000 a year, which really adds up over time.
- HBP for Extra Funds: Once you’ve saved up in your FHSA, use the HBP to pull money from your RRSP to boost your down payment. The $60,000 limit on the HBP (per person) gives you even more funds to help cover your home’s cost.
Who Can Benefit from These Programs?
To use both the FHSA and HBP, you need to be a first-time homebuyer who hasn’t owned a home in the last four years. The FHSA is open to all eligible individuals, whether you’ve been saving for a while or are just starting out. As for the HBP, you need to have an RRSP to take advantage of it.
How to Get Started
Opening an FHSA is super easy, and you can do it through most Canadian banks or financial institutions. Be sure to shop around for the best options that fit your goals. You’ll also need to have an RRSP in place if you want to use the HBP.
Final Thoughts
The FHSA and HBP are two fantastic tools for first-time homebuyers in Canada. By using both, you can save up for a down payment faster, access more funds, and keep your tax bill low. Whether you’re a few years away from buying or ready to dive into the market now, these programs can make homeownership more achievable.
So, if you haven’t already, it’s time to start taking advantage of these savings opportunities. Get your FHSA set up, make the most of your RRSP, and you’ll be well on your way to owning your first home sooner than you think.
Good luck, and happy house hunting!
