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If you are thinking about becoming a first time home buyer, planning and saving for your down payment is essential. But with the cost of homes on the rise as we continue to see low inventory levels in recent years, saving that minimum 5% can seem quite daunting. Thankfully, though, the Government of Canada announced a new way for Canadians to save for a first home more easily—the First Home Savings Account (FHSA).
What is a First Home Savings Account?
The newly introduced First Home Savings Account is a tax-free, registered plan designed to help Canadians save for a first home. Similar to a TFSA or RRSP, it can be opened through any bank or credit union, but having only just started as of April 1st, 2023, you may want to check with your own bank about availability. And if you were already planning to take advantage of your RRSP savings with the Home Buyers’ Plan—great news! The First Home Savings Account and Home Buyers’ Plan can be combined so you can make the most of your money for a down payment on your first home.
After opening, it can be used for up to 15 years to save for your first home. Once a qualifying withdrawal is made, however, it must be closed within a year.
Who Qualifies for a First Home Savings Account?
In order to qualify for opening a First Home Savings Account, you must be a Canadian resident and at least 18 years old. You must also be a first time home buyer. It is important to note that this doesn’t mean you can’t have ever bought a home previously. In fact, you just can’t have lived in a home owned or jointly owned by you or your spouse/common-law partner in the last 5 years. This only applies to opening the account, however.
How Much Can You Contribute to a First Home Savings Account?
The maximum contribution amount for the lifetime of a First Home Savings Account is $40,000—a fantastic down payment for a starter home in Saskatoon. Within the first year of opening, you can contribute up to $8,000 into your FHSA, including any transfers you may make from your RRSPs. If you don’t reach that annual contribution limit, any unused amounts will carry forward into the following year, up to a maximum of $8,000.
How to Use Your First Home Savings Account
To withdraw money from your First Home Savings Account without having to declare that amount in your income, there are a couple of qualifying criteria you will need to meet. Firstly, you will need to be a resident of Canada and a first time home buyer. Unlike qualifying to open the FHSA, however, to make withdrawals you must not have lived in a home owned or jointly owned by just yourself in the past 5 years.
Next, you will need to have a written agreement to either build or purchase a home. This must have a completion or possession date before October 1st of the year after the withdrawal is taking place. You must also plan to make this home your primary residence within a year of buying or building.
Once these criteria are met, you simply need to fill out the necessary RC725 Form, available on the Government of Canada website. Bring that, along with your written agreement, to your bank and make that down payment—it’s that easy!
With the new First Home Savings Account, saving for your first home in Canada has never been easier. To learn more about FHSAs and how to use them to your advantage as a first time buyer, visit the Government of Canada’s informational page. And when you’re ready to search for a starter home, contact your local Saskatoon REALTOR® to get started!
