Purchasing your first home is a huge milestone for families. It’s a sign of security, a space for creating cherished memories, and a special place that’s truly yours. Yet, saving up for a home can feel overwhelming, especially with the increasing prices of houses.
If you’re exploring the ins and outs of buying and financing a home, here’s some great news: The First Home Savings Account (FHSA) could be the solution to help turn your dream of owning a home into a reality.
Are you working hard to save up for your first home?
If so, there’s a special financial tool that could make this goal much easier to reach: the First Home Savings Account (FHSA).
Unlike a typical savings account, the FHSA is designed specifically to assist people who are looking to buy their first home. It’s like blending together the best parts of Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) into one powerful savings option. This unique account gives you tax benefits when you contribute money and allows tax-free withdrawals for buying your first home. It’s a smart way to grow your savings for that important step towards homeownership.
Why Was the FHSA Created?
For many Canadians, owning a home is a big dream. But let’s face it — it’s been tough for many to achieve, especially with high real estate prices, demanding substantial down payments, high income requirements for mortgages, and soaring rents that make saving harder.
With the aim of helping more folks buy their first home, the federal government announced plans to launch the FHSA in 2023. They also upped the first-time home buyers’ tax credit to $10,000 and extended the First-Time Home Buyer Incentive to March 31, 2025, among other measures to support home buyers.
Breaking Down the Basics of FHSA (First Home Savings Account)
Let’s dive into the essential aspects of the FHSA:
1. Tax-Free Savings for Buying Your Home
The FHSA is an account designed for folks buying their first home. It helps you save money for a down payment. Just like RRSPs, the money you put in the FHSA is tax-deductible. And when you withdraw that money to buy your first home, you won’t be taxed on it, just like with a TFSA.
2. Contribution Rules and Who Can Join
With an FHSA, you can add up to $8,000 every year, with a maximum of $40,000 over time. To qualify for an FHSA, you need to be a Canadian resident aged between 18 and 71 and be purchasing your first home. Specifically, you’re eligible if neither you nor your spouse/partner owned the home where you lived in the year you opened the FHSA or the four years before that.
3. Using Your Savings and Time Limits
The money you save in your FHSA must go towards buying your first home within 15 years of opening the account or by the end of the year you turn 71, whichever comes first. If you contribute more than allowed, there’s a penalty similar to what happens with TFSAs and RRSPs. If you go over the limit, you’ll be taxed 1% of the extra amount for each month it’s over.
This breakdown gives you a clearer picture of what the FHSA offers and how it works, making it easier to plan your path to homeownership while understanding the rules that come with it.
FHSA Contribution Limit and What Happens If You Don’t Buy a Home
Curious about the FHSA and how much you can contribute? Well, if you’re using the First Home Savings Account (FHSA), you can put in up to $8,000 every year to a lifetime maximum of $40,000. You must use the funds in your FHSA to purchase a first home within 15 years of opening the plan, or by the end of the year you turn 71, whichever happens first. What’s cool? No taxes apply to the money you stash away in this account.
Now, let’s say life happens, and you don’t end up buying a home right away. No worries! If you decide not to use the FHSA funds for a home purchase — maybe you prefer renting or living with someone who already owns a place, or perhaps you inherit real estate — you can transfer that money to an RRSP or a RRIF without penalties. In fact, the FHSA creates extra RRSP contribution room, up to $40,000, for all eligible Canadians looking to buy their first home.
Combining FHSA with Other Home-Buying Programs
When it comes to buying your first home, you can team up the FHSA with the Home Buyers’ Plan (HBP). The HBP allows you to borrow (withdraw) up to $35,000 from your RRSP. And if you’re purchasing a home jointly with someone else, you can combine your FHSA and HBP withdrawals. This combo can give you access to at least $80,000 from your FHSAs and $70,000 through the HBP, totaling a whopping $150,000. That’s a solid 20% down payment on a home valued at $750,000.
This is why the FHSA was created — to make buying a home more achievable for those eager to step onto the real estate ladder.
Keep in mind that these calculations don’t include potential tax-free growth in the FHSA or any savings or earnings you might have in a TFSA. Also, remember that HBP withdrawals will be taxed if not repaid within 15 years.
If you’re considering opening an FHSA on Qtrade, here’s how you can maximize its benefits:
Qtrade allows clients to trade various financial products within an FHSA, including Stocks, ETFs, Bonds, GICs, Options, and more. The rate of return is usually dependent on the performance of the securities held in the account. Qtrade clients can invest in a wide range of fixed income products like High Interest Savings Account (HISA) ETFs/Funds, GICs, and Bonds (both corporate and government).
For more information on HISA funds available at Qtrade, you can check out the link below:
Bottom line
Achieving your dream of buying your first home is both thrilling and challenging. Saving for that crucial down payment can be tough, but the FHSA is here to help make it easier. It combines the perks of RRSPs and TFSAs, giving you tax deductions on contributions and tax-free withdrawals for your home purchase. This could be the missing piece you’ve been looking for to make homeownership a reality.
Discovering the advantages of an FHSA, especially with the special deals available on Qtrade, might just be the key to unlocking the door to your dream home.
In simple terms, the FHSA is like a guiding light for first-time homebuyers, offering a smart and tax-friendly plan to turn your homeownership dreams into reality.
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JOIN THIS COURSEPlease note: I’m not a financial expert. The details I’ve provided in this post are meant for general information only. Please don’t take this as investment or financial advice. Before diving into any investment decisions, it’s super important to do your own research. Also, just to let you know, I mention the FHSA in this post because I have one myself, and I find it useful. But what works for me might not be the perfect fit for everyone, so always consider what’s best for you!
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