As of April 1st, first-time home buyers in Canada will have a new tool, the First Home Savings Account, to help them save for the down payment for a home purchase. This is a great program for prospective buyers.
What is a First Home Savings Account?
The First Home Savings Account, or FHSA as it will be known, is a registered savings plan that will be administered by qualified, participating financial institutions, such as the majority of banks, trust companies and credit unions. As your St Thomas Mortgage Broker, we can help guide you with which banks can assist you with this program.
The FHSA will function in a similar fashion almost like a hybrid of a RRSP and a TFSA. Like an RRSP your contributions put into the plan are tax-deductible, so they act to lower your taxable income in the year they are made, which will put more money in your pocket giving your opportunity to save even faster. Like a TFSA, the investment income earned within the plan is not taxable so it will build tax free.
Who qualifies for a First Home Savings Account?
In-order to qualify to participate in the program, you need to be 18 years old, be a Canadian Resident, and be considered to be a first time home buyer.
The First Time Home Buyer qualification isn’t necessarily cut and dry, so it is important to look into the details. Even if you or a spouse owned a property in the past, you may still qualify depending on the situation.
Are there any restrictions for an FHSA?
Once you have opened a FHSA account, you have 15 years to use it. If you don’t use it within 15 years, the income earned in the plan would be considered taxable income.
You are allowed to contribute up to $8,000 annually into the account to a total of $40,000 over the 15 year allowable time frame of the account. The $40,000 limit is just on the actual contributions you make and does not include accumulated income.
What else do I need to know about the First Home Savings Account?
Unlike a TFSA you do not start earning contribution room until you open an account, so even if you do not have much if any to immediately contribute. The earlier you open the account, the earlier you will start to build up your contribution room.
You can find more details on the First Home Savings Account here as well as a look at if this gives you a leg up on your parents situation when they bought their first house?
When talking to your St. Thomas Mortgage Broker, make sure to discuss your past home ownership history, as we will include it in our pre-qualification discussion which can help you realize the dream of homeownership sooner.