One of our most satisfying moments as a real estate team is seeing a client’s joy and excitement when getting the keys to a new home. When that client is buying a house for the first time, the exhilaration is off the charts.

Today’s market doesn’t make it easy for a first-time buyer to get a foot on the property ladder, however. Soaring housing prices have many people putting this milestone on hold. 

That’s why we want to make sure everyone is aware of all resources available. Today, we’ll do a deep dive and answer all of your questions about the First Home Savings Account (FHSA).

Before we dive in, have you downloaded our Homebuyer Handbook? Get your copy for free today. It’s another great resource for first-time buyers!

FHSA Defined

First things first: What is the First Home Savings Account, and why are we hearing so much about it in real estate circles?

The simple definition is obvious. It’s an account where first-time buyers endeavour to save money for a house. But this is much more than just a traditional bank account. It’s an investment account. Think of it this way:

You put money aside into an account. Then that money goes to work for you to earn even more, which greatly enhances all of your efforts.

Best of all, the money you invest is tax-free, provided you use it for the intended purpose of buying your first home. Not only that, but your contributions also reduce your taxable income for the year. In other words, the FHSA is a highly tax-advantaged resource that can go a long way toward making your first purchase more affordable.

Should you buy your first home in or near Halton Hills, Ontario? The posts below will give you something to ponder:

What Are the FHSA Rules?

FHSA contribution limits are $8,000 per year, to a lifetime maximum of $40,000. 

If you contribute more than $8,000 in a calendar year, you’ll pay a penalty of 1% per month on the excess amount until it’s corrected. You can withdraw the over contribution, which could affect you at tax time. Alternatively, you can wait until the next year when your contribution room increases — but this option could turn out to be expensive due to the ongoing penalties.

The good news is that there is some flexibility as long as you stay within the limits. This helps account for how life can change over time. For example, if you can only put aside $4,000 this year, you can add the remaining $4,000 to your contribution ceiling the following year and save up to $12,000.

Using the FHSA for Your Down Payment

Ask anyone who has ever bought a house, and they’ll tell you the hardest part is saving for a down payment. You can’t borrow these funds; they must be available to you free and clear.

Even with its limitations, the FHSA can be a powerful tool. Your contributions cannot exceed $40,000, but your potential for investment growth is uncapped. If your fund earns a healthy percentage each year, you’ll have a substantial nest egg when it’s time to buy.

That’s why it’s better to open an FHSA as soon as you’re eligible. Let’s say you open an account as soon as you turn 18. If you make the maximum contributions each year, you will reach your lifetime limit at age 23.

What if you’re not quite ready to buy at that point? You’re not allowed to put any more money into that account, but it will still continue to grow in value tax-free until you withdraw it.

Dreaming about a house in beautiful Halton Hills, Georgetown, or the surrounding community? Take the next step by browsing our featured listings.

Can I Have Multiple FHSA Accounts?

As long as you meet the FHSA eligibility requirements, you can open as many accounts as you like. However, there’s no skirting around the contribution rules — your yearly and lifetime limits remain the same across all accounts.

Multiple accounts might be a way to diversify your investments. Just keep in mind that management fees could also be higher, which might eat into your returns.

Once you make a qualifying purchase, you have until December 31 of the following year to close all of your FHSA accounts.

When Can I Withdraw From an FHSA?

You can take money out of an FHSA at any time and for any reason. However, if the withdrawal is not for a qualifying first home purchase, the amount will be taxed as income.

Alternatively, you might choose to transfer those funds to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) on a tax-deferred basis. This option applies in several scenarios:

  • If you have over-contributed to your FHSA
  • If you decide not to buy a home after all
  • If you have funds left over after buying your first home

Looking for more tips to make your first home-buying adventure a success? You’ll find plenty in the posts below: 

Can You Use Both an RRSP and an FHSA?

The good news is, yes, you can use your RRSP funds to buy a home through the Home Buyers’ Plan (HBP), which allows you to withdraw up to $60,000 for a qualifying purchase. 

The difference between the HBP and the FHSA is that you must repay those funds back to your RRSP within 15 years. If not, the unpaid amount will be taxed as income.

That’s why the HBP is a valuable program — just not as advantageous as the FHSA, which is tax-free with no repayment required.

Our recommendation is to open an FHSA as soon as you can. When the time comes, you can combine both programs to maximize your savings. By making full use of all available resources, your first home purchase may be more attainable than you think.

Are you ready to begin house hunting? Our Georgetown real estate agents can help. Give us a call directly at 905-873-9944, email us at info@lisahartsink.com or fill out the form on this page to get in touch!