Downpayment Savings Strategies: FHSA, HBP & Gifted Funds
There are three sanctioned, tax-efficient ways to fund your downpayment in Canada. Most successful first-time buyers combine all three. Here is exactly how each one works.
Gifted Funds from Family
A popular route for first-time buyers is utilizing financial assistance from immediate blood relatives (parents or grandparents). Lenders accept this, provided you supply a signed Gift Letter. This document explicitly states that the money is a pure gift and that you are under no obligation to repay it at any point.
The Home Buyers' Plan (HBP) via RRSPs
The federal government's HBP allows you to withdraw up to $60,000 tax-free from your Registered Retirement Savings Plan (RRSP) to use toward your home purchase, provided the funds have been settled in the account for at least 90 days. If you are buying with a partner who is also a first-time buyer, you can combine your limits for a total tax-free withdrawal of up to $120,000.
Tax-Free First Home Savings Account (FHSA)
The FHSA allows you to save up to $8,000 per calendar year (up to a lifetime cap of $40,000 per person) for a downpayment.
- It combines the best perks of an RRSP and a TFSA: Your contributions are completely tax-deductible, and any investment growth or withdrawals used to buy your home are completely tax-free.
- Unlike the HBP, there is no requirement to repay these funds. Best of all, you can combine both the HBP and the FHSA on the exact same home purchase.
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