As a mortgage broker, I understand how important it is for first-time homebuyers to have access to savings options that can help them achieve their goal of homeownership. That’s why I am excited to hear about the federal government’s new First-Home Savings Account (FHSA), which officially launched on April 1, 2023. I think it is a great option beyond using your RRSP with the First Time Home Buyer Program.
The FHSA is similar to the Tax-Free Savings Account (TFSA) in that funds can be placed in a variety of investment vehicles and withdrawn tax-free as long as they are used for a qualifying first-home purchase. However, the FHSA has a higher contribution limit of $40,000 and is specifically designed to help first-time homebuyers save for a down payment.
While the program is a great opportunity for prospective homebuyers, it’s important to note that the Big 6 banks have confirmed they won’t be offering the account to clients until later in the year. The delay is due to the banks finalizing the logistics of offering the account so you may have to wait a little longer if you would like to get started using it.
If you’re considering opening an FHSA, here are some key details you should know:
- Eligibility: Any resident of Canada who is at least 18 years old and hasn’t owned a home or lived in a home owned by their spouse or common-law partner in the calendar year or four preceding calendar years.
- Contribution limit: You can contribute up to $8,000 per calendar year, up to a lifetime limit of $40,000.
- Qualifying first-home purchase: Funds withdrawn from the account are only tax-free if they are used for a qualifying first-home purchase. To qualify, the purchase must meet certain criteria, such as being a first-time homebuyer and a resident of Canada at the time of the withdrawal and during the purchase of the qualifying home.
- Eligible investments: Account-holders can invest in mutual funds, publicly traded securities, government and corporate bonds, and GICs within the account.
- Unused funds: The funds in the FHSA account must be used to purchase a first home by either the end of the 15th year after the plan was opened or by the end of the year you turn 71 years old. If you don’t use the funds for a first-home purchase, the unused balance can be transferred to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) or withdrawn on a taxable basis.
While the FHSA won’t be available from the Big 6 banks until later in the year, it’s never too early to start thinking about your savings goals and how you can achieve them. As a mortgage broker, I’m here to help you navigate the process of buying a home and can offer guidance on the best mortgage options for your unique situation.