First Home Savings Account for Winnipeg Buyers
April 12, 2023 | Posted by: Ron Chan
After months of nothing but news of rising inflation and mortgage rates, new buyers in Winnipeg Manitoba have something to get excited about. The federal government has launched (as of April 1 2023) the tax-free First Home Savings Account (FHSA) program. This gives first time buyers (you) a path forward when it comes to building up a downpayment on a starter home. Below is a breakdown of everything you need to know.
How New Buyers in Winnipeg Can Secure a Downpayment Through Canada’s New Tax-Free First Home Savings Account (FHSA) Program
How the FHSA Helps With Your Downpayment
The FHSA is a federal government initiative that has been launched to help first time buyers afford to buy a home amidst a competitive housing market that has driven up prices.
The FHSA is a registered savings account that allows you to contribute up to $8,000 a year to a lifetime limit of $40,000 over the course of 15 years, or by the time you turn 71 (whichever is soonest). And don’t worry if you don’t have an extra $8K to contribute as you can make smaller contributions (i.e. $6K) one year and make up to $10K the next - so on and so forth. Moreover, contributions made to the FHSA are tax deductible and your withdrawals are tax-free. Any investment gains made within the FHSA are also tax-free. Even better, is that you can open more than one account with more than one financial institution, as long as your total contributions don’t exceed the annual and lifetime limits. There really is no downside to this program.
How exactly does this help with your downpayment? Simply put, the FHSA offers you a better way to save and accrue funds needed for a downpayment without the tax “penalties” that come from other similar “investments” and subsequent withdrawals. You’ll accrue your downpayment faster and without consequence.
The following conditions to using your FHSA to put towards a downpayment on your first home are as follows:
- Your property was acquired within 30 days before making the withdrawal from the FHSA.
- You have a contract or written agreement to purchase or build the house before October 1 of the following year.
- The home will be your primary residence for at least one year after acquiring or building the home.
Combines with Other Programs
You may be concerned about having to choose between this exciting new program and other first-time buyer incentives that you’ve already done research about. You don’t. New buyers can combine the FHSA with Canada’s Home Buyers Plan (HBP) to maximize how much you put down on a home which will help you pass the mortgage stress test; the higher your downpayment, the less you have to borrow, and the lower your required monthly payments (all use equal). For the uninitiated, the HBP lets you withdraw up to a penalty-free $35,000 from your RRSP with a repayment period of 15 years.
What if Things Change and You Don’t Need the Downpayment?
A lot can change in 15-years, 10-years, 5-years, or even 1-year. This may have you balk at the prospect of starting your FHSA. Fret not, because if decide not to put your saved funds into a downpayment, you can transfer your full FHSA balance (including capital gains) over to an RRSP without any penalties or impact on your RRSP contribution room. You will have to eventually pay any required taxes on your withdrawals, but this is no different than it is with any RRSP withdrawal.
*If you withdraw from your FHSA early, the withdrawal amount will be considered taxable income.
How to Qualify
As the name implies, only first time buyers can apply for a FHSA. This includes Canadian residents who have not lived in a home owned by themselves nor their spouse or common-law partner in the previous 5-years.
How a Mortgage Broker Helps
A mortgage broker will confirm that you qualify for the program and will walk you through the entire process. That part is simple enough. But where a broker helps the most applies to the one point of contention critics have, who state that the program doesn’t go far enough to tackle the lack of affordability.
It’s true that the First Home Savings Account (FHSA) program doesn’t fix that problem. Only a mortgage broker can help a new buyer with the burden of tight real estate inventory and high mortgage rates. How? An established broker has relationships with lenders which includes bulk-discount access to lower than advertised mortgage rates (fixed and variable) and can also connect buyers to alternative private lenders should the banks not offer favorable terms. View more on how brokers can increase your buyer power amidst low real estate inventory in Winnipeg.
GET HELP QUALIFYING FOR THE FHSA AND GET PRE-APPROVED ON A MORTGAGE IN WINNIPEG MB: