Mortgage Blog

First Home Savings Account (FHSA): Your Key to Buying Your First Home in 2024

October 8, 2024 | Posted by: Yelena Markus

Saving for your first home can feel like a daunting challenge. Back in 2015, the average home price in Canada was around $451,000, but today in 2024, that figure has surged to nearly $650,000. This sharp increase, coupled with the effects of the Bank of Canada’s rate hike cycle between 2022 and 2023, has made affordability a greater concern than ever. While interest rates are finally trending down, they remain significantly higher than during the pandemic, making it tough for many first-time buyers to break into the housing market.

Thankfully, the First Home Savings Account (FHSA) is here to help ease this challenge. Formally launched in April 2023, this tax-sheltered account was created as part of the federal government’s ongoing efforts to make homeownership more achievable. In this blog, we'll guide you through everything you need to know about the FHSA, from its benefits to eligibility and how it can help you save for your dream home.

What is the First Home Savings Account (FHSA)?

The First Home Savings Account (FHSA) is a new type of tax-advantaged savings account designed to help Canadians save for their first home. Announced as part of the 2022 federal budget and implemented in 2023, the FHSA combines the best features of two popular savings vehicles: the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP).

Here’s why it stands out:

• Tax-Deductible Contributions: Similar to an RRSP, contributions to an FHSA are tax-deductible. This means that any money you deposit into your FHSA will lower your taxable income, saving you money on taxes today.
• Tax-Free Growth: Like a TFSA, any investment growth within your FHSA is tax-free. You won’t have to report the earnings or pay taxes on them when you withdraw funds to buy your first home.
• No Repayment Required: Unlike the RRSP Home Buyers' Plan, which requires repayment over time, FHSA withdrawals do not need to be repaid.

With an annual contribution limit of $8,000 and a lifetime maximum of $40,000, the FHSA offers a powerful way to grow your down payment without the burden of taxes.

Who is Eligible for the FHSA?

The FHSA is available to all Canadians who are:

• First-Time Home Buyers: You must be a first-time buyer, meaning you haven't owned a home within the last four years.
• At Least 18 Years Old: There is no upper age limit, making this a flexible savings tool for anyone looking to enter the housing market for the first time.

Benefits of the FHSA for First-Time Home Buyers

1. Easier Savings for Your Down Payment: The FHSA simplifies saving for your first home. You won’t need to dip into your RRSP contribution room, and you won’t face the obligation to repay funds, reducing long-term stress.

2. Tax Advantages: Contributions reduce your taxable income, and any growth in your investments is tax-free. This dual advantage helps your savings grow faster compared to a traditional savings account.

3. Potentially Larger Withdrawals: If you’re buying a home with another first-time buyer, you both can maximize your FHSA contributions, potentially allowing for a total withdrawal of $160,000 or more combined, depending on your savings growth. This can give you a significant advantage when putting together your down payment.

Key FHSA Details at a Glance

• Contribution Limits: You can contribute up to $8,000 per year, with a lifetime maximum of $40,000.
• No Repayment: Unlike the RRSP Home Buyers' Plan, FHSA withdrawals do not need to be repaid.
• 15-Year Window: You have 15 years from the time you open the FHSA to use the funds towards buying a home. If you haven’t used the funds by then, you can transfer them to an RRSP or a Registered Retirement Income Fund (RRIF) without tax penalties.

How to Open an FHSA

Since April 1, 2023, all federally-regulated financial institutions in Canada have been offering the FHSA. To open one, you’ll need to:

1. Contact Your Financial Institution: Most banks, credit unions, and other financial service providers now offer the FHSA.
2. Verify Your Eligibility: Ensure you meet the criteria for being a first-time home buyer and are at least 18 years old.
3. Start Contributing: Make annual contributions of up to $8,000, keeping in mind the lifetime cap of $40,000.

FHSA vs. RRSP and TFSA: Which is Best for You?

The FHSA is specifically tailored for first-time home buyers, making it an excellent choice for those looking to maximize their savings for a down payment. Here’s how it compares to other accounts:

• RRSP: While the RRSP Home Buyers' Plan lets you withdraw up to $35,000 for a first home, you must pay it back over 15 years. The FHSA doesn’t require repayment, offering more flexibility.
• TFSA: Contributions to a TFSA are not tax-deductible, but withdrawals are tax-free. The FHSA combines these benefits with the added advantage of tax deductions on contributions, making it a more powerful tool for home buying.

Final Thoughts

The road to homeownership may feel challenging, especially with rising home prices and interest rates. However, the First Home Savings Account (FHSA) offers a valuable opportunity to save efficiently and effectively for your first home. With tax deductions, tax-free growth, and no repayment obligations, the FHSA provides much-needed support to make your dream of owning a home a reality.

If you're ready to get started or need more guidance on how to maximize your savings, feel free to reach out. As a mortgage broker, I can help you navigate the complexities of home buying, from saving for a down payment to securing the best mortgage rates. Let's make your homeownership dreams come true together!

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