First Home Savings Account: How it can help you buy your first home
Wondering how the First Home Savings Account works? Let's break it down, and how to use it to save toward your first home.
Wondering how the First Home Savings Account works? Let's break it down, and how to use it to save toward your first home.
Are you dreaming of owning a home, but feel like it’s out of reach? It may be time to look into how FHSA works, whether you qualify for one, and how this financial product can help with getting you into your first home.
A First Home Savings Account, or FHSA, can make a huge difference as you save towards buying a home, and towards paying down your mortgage. This account is designed to help people who don’t yet own a house break into the market. So how can you tell if it’s the right account for you? Let’s look at whether the FHSA is worth it for you.
Credit union experts can help walk you through just that, and help you learn more about how the first home savings account works. Let’s start with some basics (like comparing First Home Savings Account vs TFSA).
An FHSA is a tax-free savings account designed to help you save for your first home. This first home savings account combines the tax-deductible benefits of a Registered Retirement Savings Plan (or RRSP) with the tax-free withdrawals of a Tax-Free Savings Account (or TFSA).
Contributions to an FHSA account can be up to $8,000 per year, for a maximum of $40,000 over 15 years that can be put toward the purchase of a qualifying home that’s built and located in Canada.
An RRSP is a Canada Revenue Agency (CRA) registered savings plan that helps you save and build equity for retirement. Money in this account earns tax-free interest from when it’s deposited, until it’s withdrawn.
A TFSA is another CRA registered savings plan that allows you to hold cash or other investments, free of taxes. The amount you can deposit in this account per year is limited, and determined annually by the government. Because this account is tax free, money in it is never taxed, even if it’s withdrawn.
Learn more about both accounts with our ultimate guide to TFSAs and RRSPs. And for those looking to learn even more financial terms, our financial terms glossary is a great place to start.
If you want to open an FHSA in Canada, you must be a Canadian resident, at least 18 years of age, and also a first-time home buyer. Meeting these eligibility criteria means you are among those who’d quality for the FHSA.
It’s important to note that if you are purchasing this home with a spouse or common-law partner, these qualifications apply to them as well. And of course, before deciding to purchase a home, either alone or with someone, try our mortgage calculator to get a general sense of what you can afford.
You can withdraw funds to use for a down payment, building a new home, purchasing new furniture, or sprucing up your new home, as long as the withdrawal is a qualifying withdrawal as defined by the CRA.
Even a small amount contributed each month will add up quickly. You can set up a pre-authorized debit to make small, regular contributions to your FHSA, and before you know it, you will have reached your goal.
If you don’t buy a home, any unused savings in your FHSA can be transferred to an RRSP (the retirement plan we mentioned earlier) or a Registered Retirement Income Fund (or RRIF). Alternatively, those funds can be withdrawn as a taxable withdrawal and reported as income.
Yes! Here’s a quick breakdown of how it works. If it sounds confusing, don’t worry. More information about the First Home Savings account can be found on the CRA’s website.
FHSA accounts expire on December 31 of the year in which the earliest of the following occurs:
1. One year after you make your first qualifying withdrawal.
2. The 15th anniversary of opening the account.
3. The year you turn 71.
Homeownership might feel out of reach right now, and making a saving plan is often the hardest part of getting started. That is exactly where the FHSA, especially when paired with advice from your credit union, can help. Credit union experts are here to help you build a plan to get you into your first home.
Whether your dream home has gorgeous sunset views, a dog-friendly yard, or a huge garage for hobbies, your credit union is here to help you get there.
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