If you're thinking about jumping into the housing market, now might be the time to do it. Prices are on the rise and buying your first home comes with a few challenges, although luckily the Canadian government has introduced a new program to help first-time homebuyers save for your first home - the First Home Savings Account (FHSA).
What is the FHSA?
The First Home Savings Account is a registered plan that allows those who qualify to save up to $40,000 in a tax-free account for your first home purchase. Certain aspects are similar to those of an RRSP and TSFA. Like an RRSP you can deduct the amount you contribute from your taxable income and you can contribute up to $8,000 per year. Like a TSFA, the amount of interest earned in the account is tax-free and when you're ready to purchase your first home, you can withdraw the savings tax-free.
What's the difference between FHSA vs. RRSP?
As mentioned, the FHSA and RRSP are similar in the sense that you can deduct your contributions from your taxable income. Where these two programs differ is that the FHSA allows you to withdraw savings from the account tax-free, whereas with an RRSP withdrawals are taxable. Additionally they have different limitations. RRSP's have an annual contribution limit of 18% of your income or $30,780 (whichever is lower)with no lifetime limit and the FHSA has an annual contribution limit of $8,000 and a lifetime limit of $40,000.
Can I use the FHSA and the Home Buyer's Plan (HBP)?
The Home Buyer's Plan allows you to withdraw up to $35,000 from your RRSPs to buy or build a qualifying home. You can use the FHSA in addition to the HBP to boost your savings, reduce your taxes, and buy your first home. The HBP requires repayment over 15 years, although the FHSA does not.
Am I Eligible to use the FHSA?
Here is a list of required criteria in order to use the FHSA program:
You must be a resident of Canada and over the age of 18.
Within the past four years, you must not have owned a home or lived in a home owned by your spouse or common-law partner.
You must have written agreement to buy or build a qualifying home for yourself or for a related person with a disability.
Within one year of buying or building the qualifying home, its intended use must be for primary residence.
More condition may apply. Contact your mortgage professional to examine your specific situation and see if you're eligible.
Conclusion
Currently in Canada, there are several programs that benefit first-time home buyers and the FHSA is another one that you should consider using to your advantage. The FHSA can help you save more money and pay less taxes and can be used in addition to other home buyer programs. Don't wait to talk to your mortgage professional and explore your options as a first time home buyer.