Buying a home is a lot more complicated these days than it used to be – and we’re not just talking about the due real estate process that must be followed before properties can close and the keys can be handed over. No, we’re talking about the cost of buying a home. With home prices on the rise and mortgage rates not showing any sign of decreasing soon, home buying is a challenge for anyone. But it’s especially difficult for young home buyers.
The FHSA, or First Home Savings Account, is designed to help with that first home purchase – and what a help it can be, provided Canadians meet the eligibility requirements and stay within the contribution limits.
Speaking of eligibility, the requirements are pretty basic. If you’re at least 18 years old and haven’t owned a property within the past four years, then you’re eligible to open an FHSA at any financial institution.
From there, you’re able to contribute up to $8,000 tax-deductible dollars each year up to a $40,000 lifetime contribution limit. If you make an excess contribution, you’re looking at a 1 percent penalty that’s applied on a monthly basis. What’s nice about the FHSA is that any unused portions of it can be carried forward and it can also be used in conjunction with the Home Buyer’s Plan.
So when can you withdraw funds from the FHSA without penalty? Generally speaking, you have to either buy or build a home within one year of withdrawal. Otherwise, the money you withdraw is treated as income and will be taxed.
Keep in mind that FHSA accounts close 15 years after opening them or when the account holder turns 71 years old (whichever comes first). However, if FHSA funds aren’t used for the purchase of a new home, they can be transferred to other types of savings accounts – notably the RRSP or RRIF – without penalty.