If you’re considering buying your first home, but unsure how to save for your down payment, you’re not alone. Home ownership doesn’t have to be a pipe dream — it simply requires a savings strategy. Enter the First Home Savings Account (FHSA), a registered savings account that allows you to save up to $40,000 to use toward the purchase of your first home. Any FHSA contributions you make are tax-deductible and all withdrawals you use to purchase your first home, including the investment income, are non-taxable. This means the FHSA not only helps you save for your down payment, but it also reduces your tax bill, saving you money in the meantime. Learn all about the FHSA including eligibility and how the program works.
How can you make the most of these benefits? Follow these five steps to kickstart your savings and get into your first home faster.
1. Decide on a timeline
Deciding on a specific timeframe for your first home—whether that’s two, five, or 10 years down the road — empowers you to start saving now. Just keep in mind that once you open an account, you have 15 years to use it, or until you turn 71 (whichever comes first).
While school might be in the recent past or longer ago than you care to remember, there’s one homework assignment you won’t want to skip: A little market research. Look at homes in your preferred neighbourhoods to give you an idea of what price range you’re looking at, and how large of a down payment you will need.
Hot tip: Forget the pen and paper—use our new mortgage calculator to estimate your down payment, compare mortgage costs, and determine how much house you can afford.
Based on these numbers, you can then determine how much you will need to save monthly or annually (up to a maximum of $8,000 in your FHSA yearly) to reach your goal
2. Explore your investment options
Once you’ve figured out how much you need to save, the next step is to pick an investment option to get there. At SCU, we offer two options: Variable savings accounts and GICs.
Variable savings
Variable savings accounts are all about flexibility. They come with no minimum balance requirements, the ability to withdraw funds as needed, and a competitive interest rate.
Hot tip: While flexibility can be helpful, you ideally don’t want to withdraw from your FHSA for any reason other than purchasing your first home. Funds withdrawn for any other reason are subject to taxes, and if you accidentally over-contribute to your FHSA, you will face penalties and interest.
Guaranteed Investment Certificate (GIC)
A GIC is a lower-risk investment that provides a guaranteed rate of return over a fixed period and typically provides you with a higher rate of return on your investment than a variable savings account.
Hot tip: With a GIC, your investment is usually non-redeemable before the end of the term, meaning you typically won’t be able to access your GIC funds until the term ends. If you plan on purchasing your home soon, consider opening a shorter-term GIC or sticking to a variable savings account.
3. Create a savings strategy
You’ve seen that variable savings accounts and GICs both have unique benefits. Which should you choose? This is where your homework from step one comes in handy. You’ve already determined how much of a down payment you need. You’ve also set a timeframe for when you plan to purchase your home. Based on those goals, you can come up with the savings strategy that makes the most sense for you.
For example, say you plan to buy your first home in the next five years. If you don’t have the savings to put a large amount in a GIC right now, you can start by setting a monthly pre-authorized debit into a variable savings FHSA, then transfer that lump sum into a GIC at the end of the year. Plus, your contributions help you receive a better refund at tax time, which you can also use to contribute to your FHSA. That’s the beauty of this account — you get money by saving money!
If you have a shorter timeframe for buying your home, you can stick to a variable savings FHSA or simply save in a shorter-term GIC. When your GIC term ends, you can either transfer the funds to a variable savings or renew your GIC for another term. That makes it a good time to re-evaluate your homebuying goal to see if you are still on track with your original timeline.
Hot tip: There are plenty of strategies you can put in place to maximize your FHSA, so if you would like advice tailored to your situation, contact one of our deposit specialists at any time.
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4. Consider pairing your FHSA with other savings accounts
While the FHSA is a great way to save for your first home, there’s another account that can help make your purchase more affordable: An RRSP. Through the Home Buyers’ Plan (HBP), you can withdraw up to $60,000 to top off your savings and increase your down payment. This will reduce your monthly payment and give you room in your budget to pay back your RRSP over time. Keep in mind you will have to pay back the funds within 15 years.
Hot tip: Save more money than you need in your FHSA? Not to worry. You can transfer any savings you don’t use to purchase your first home to an RRSP or RRIF, which will be taxed upon withdrawal according to the applicable rules.
One final thought: While saving for your first home is a big step, and a great financial goal, you don’t want to sacrifice other savings goals you may have (vacation, retirement, your child’s college fund, etc.). Read our article to learn how different registered investments can help you achieve your goals.
5. Open an account early, then catch up on unused contribution room
Don’t worry if you feel like you’re starting your savings journey late, or don’t have the full $8,000 to contribute each year. In addition to the $8,000 you can put in your FHSA annually, you can also contribute up to $8,000 in unused contribution room from the previous year. Your contribution room starts from the date you open your FHSA, so be sure to open your account early, regardless of how much you can save.
Here’s an example to help clarify: Say you open an account in 2023 and contribute $3,000 that year. The next year, you start a new job that allows you to increase your contributions. In addition to the $8,000 you can contribute in 2024, you still have $5,000 in unused contribution room from the previous year, giving you a total of $13,000 in 2024.
Open an FHSA now
Now that you’ve seen how to make buying your first home more attainable, it’s time to take the next step.
You can open an FHSA online today, book an apointment, or contact a lending specialist if you have questions about the next step on your homebuying journey at 1.800.728.6440.
