Posted On Feb 28, 2024

[Originally posted Jan 8'24.  Re-Posted April 16'24 to reflect changes to RSP Home Buyers' Plan]

Purchasing a first home has increasingly felt like a daunting and impossible task for many as a heated real-estate market priced many people out.  While some prospective first time buyers have given up altogether on the dream of home ownership.  Many others still dream of home ownership and are momentarily on the sidelines - waiting for interest rates to fall or for more of a buyer’s market to develop.  And depending on what you read, the data  and forecasts on where prices are going is inconsistent.   On a macro-level, getting real affordability back may take many years and a lot more new housing construction than we have seen.  Rather than waiting, entering the market now, despite higher mortgage rates, might be more advantageous than waiting. Thankfully, Canada also offers several government programs to assist first time home buyers to get into the market - this article will explain the programs available to help with the challenge of saving for a down payment.

Understanding the Key Federal Programs to aid First-Time Home Buyers

1. RSP Home Buyers’ Plan (RSP HBP)

This program allows you to withdraw up to $60,000 from your RRSPs to buy or build a qualifying home (effective April 16'24). The withdrawn amount is not taxed as income, provided you repay it within a 15-year period.  Note:  People who have made or will make withdrawals between Jan. 1, 2022, and Dec. 31, 2025, are now getting more time to begin repayment -- up to five years in total rather than two with the government's April'24 budget announcement.

2. First Home Savings Account (FHSA)

A new initiative, the FHSA combines the features of an RRSP and a TFSA. Contributions are tax-deductible (although unlike an RSP they are only deductible against income in the year of the contribution) , and withdrawals to purchase your first home are tax-free. You can contribute up to $8,000 annually, with a lifetime contribution limit of $40,000.

How/when to contribute to the FHSA and RSP HBP in 2024 and 2025 to grow your savings for down payment

If you're eyeing a home purchase in 2024 or 2025, here's how you can leverage these programs effectively (note how Dec 31st is a crucial date to plan around):

If Buying (later) in 2024:

  • Make an RSP Contribution: You can contribute to your RRSP up to the first 60 days of 2024 and still claim it against your 2023 income.

  • Leverage Tax Refunds: The contribution to your RRSP can yield a substantial tax refund that you would get in 2024, which you can add to your down payment funds.

  • You can withdraw your RSP contribution after 90 days and participate in the RSP Home Buyers’ Plan

If Buying in 2025:

  • Open and Contribute to an FHSA: Ensure you open an FHSA and contribute (up to $8,000) before December 31, 2024 because contributions you make to your FHSA can only be deducted on your income tax and benefit your return from the year of the contribution 

  • Make RSP Contributions for 2023 and 2024 tax years: contribute to your RRSP up to the first 60 days of 2024 and claim it against your 2023 income.  Unlike FHSA, you can also contribute to your RRSP up to the first 60 days of 2025 and claim it against your 2024 income.

  • Leverage Tax Refunds: The contributions to both FHSA (for 2024) and RRSP (for 2023 and 2024 tax years) can yield substantial tax refunds, which you can add to your down payment funds.

In Ontario, the provincial government also offers various (additional) programs and accounts designed to assist first-time homebuyers in achieving their dream of homeownership… 

 

  • The Homeownership Savings Plan (HSP) is a unique program in Ontario that encourages residents to save for a down payment by providing a tax incentive. Under the HSP, individuals can deposit up to $20,000 into a registered account, and the government will match their contributions by 25%. This means that for every $4 saved, the government contributes an additional $1, up to a maximum of $5,000

  • Land Transfer Tax Rebate:  Ontario offers a Land Transfer Tax Rebate for first-time homebuyers to alleviate the financial burden associated with the purchase. Eligible individuals can receive a rebate of up to $4,000, helping to offset the land transfer tax payable upon acquiring a property. It's important for buyers to be aware of this rebate and factor it into their budget calculations

  • Ontario Renovates Program:  While not specifically aimed at first-time homebuyers, the Ontario Renovates Program can be a valuable resource. This program provides financial assistance to low- and moderate-income households for necessary home repairs and modifications. By maintaining and enhancing the value of their current residence, individuals can potentially increase their property's resale value or create a more appealing living space.

Engaging with a Mortgage Agent

Regardless of your purchase timeline, consulting a Mortgage Agent early is crucial. They can help you with:

  • Education:  To guide you in maximizing all available government programs

  • Pre-approval: Knowing your spending limit and having a negotiation advantage.

  • Improving Approval Chances: Strategies to enhance your financial profile (such as improving your credit) for a successful mortgage application

  • Safeguards for whenever/wherever interest rates move:  No need to delay a purchase because rates are high now and expected to decrease - a Mortgage Agent can ensure you have the right solution in place that will allow you to get in the market now and benefit if rates decrease later on  

Conclusion

By understanding and utilizing the RSP HBP and FHSA effectively, and with timely contributions, you can significantly boost your down payment, making that first home a reality. Remember, the key for us to navigate these opportunities and help you or your loved ones achieve their goal of home ownership for the first time is for us to start working together early and plan strategically.

 

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