As a realtor in downtown Toronto, I often work with first-time home buyers who are looking to make their dream of homeownership a reality. One newer tool that I recommend to my clients is the First Home Savings Account (FHSA).
What is the First Home Savings Account (FHSA)?
The FHSA is a savings account designed specifically for first-time home buyers in Canada. It allows you to save money towards the down payment on your first home while also earning tax-free interest on your savings. To qualify for the FHSA, you must be a Canadian resident and have never owned a home before.
One of the benefits of the FHSA is that it allows you to save up to $8,000 per year towards your down payment, with a lifetime contribution limit of $40,000. The money you contribute to the account is not tax-deductible, but any interest you earn on your savings is tax-free. Plus, if you have a partner or spouse who is also a first-time home buyer, they can also contribute to their own FHSA and double the amount of savings you have for your down payment!
Another advantage of the FHSA is that it is different from the Home Buyers Plan (HBP). The HBP allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) tax-free to use towards the down payment on your first home. However, with the HBP, you have to repay the money you withdrew back into your RRSP over a 15-year period. With the FHSA, there is no repayment required, and the money you save is yours to use towards your down payment when you are ready to purchase your first home.
The FHSA contribution can be carried up to a maximum of a year, meaning if you do not contribute the full $8,000 this year, next year you can contribute $16,000. This also lowers your own income which is added tax savings, giving you more money to use towards purchasing a home.
The FHSA is a great savings tool for first-time home buyers in Canada who want to save towards their down payment and earn tax-free interest on their savings. If you're a first-time home buyer, be sure to speak to your financial advisor or mortgage broker to learn more about the FHSA and how it can help you achieve your dream of homeownership. Every dollar counts!
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