Jumping into the world of adulting
You have decided you want to buy your first home and are wondering what help is available. There are two primary savings tools for first-time home buyers to buy a new home in Canada. You can consider these your welcome to home ownership hug from the government. You can use the First Home Savings Account(FHSA) or/and you can use your RRSP with the First time Home Buyers Plan(HBP). And, yes you can use both and so can your spouse or partner. The FHSA allows you to contribute $8,000 per year to a maximum contribution of $40,000. The savings can be invested and you will not be taxed on the growth of the investments when you withdraw it for the purchase, similar to your TFSA. The contributions are tax-deductible like your RRSP.
The HBP allows you to use $35,000 from your RRSP to purchase your first home without tax consequences. This amount will be increasing to $60,000 based on the recent budget. A big difference with the HBP is that it needs to be repaid within 15 years. Each year you must pay back 1/15 ($4000 annually on $60,000) of the amount or you will be taxed on that amount and lose that RRSP room.
Assuming the budget passes, this means you have access to $100,000($200,000 as a couple) to buy your new home. There are some key considerations for you to make when considering where to withdraw the money from. The primary considerations are when are you buying and how much do you have saved outside your RRSP. If it is in the near future, and you have no savings outside of your RRSP, you will likely consider the HBP. There needs to be consideration for future cash flow and budgeting because you have to repay 1/15 annually. It also affects retirement because you lose the growth on that money until you pay it back. When you have a longer time horizon to purchase the home, you can fund the FHSA, receive the tax deduction, and not worry about repayment or affecting your retirement.
Like most financial decisions, it depends on your situation.
Important links: FHSA Home Buyer’s Plan Federal Budget Announcement