What are your next steps after your home buying offer is accepted? Here’s what you need to do before closing day!
The First Home Savings Account (FHSA) is the newest savings product from the Canadian government. It is aimed at new home buyers with the intention of helping them build up a tax-free foundation to purchase a home. However, even if you are not quite ready to jump into the housing market, it could still be worth setting up this savings account. Here’s what you need to know about this product.
What is the point of the FHSA?
The FHSA is a great tool for new home buyers in Canada. It is a new product that launched in April, but didn’t become widely available to Canadians until quite recently. This account allows first-time home buyers to contribute up to $40,000 tax-free, which is then used towards the purchase of a future home. Buyers can add up to $8000 per year until they hit that $40,000 limit. This has quickly become a popular tool for Canadian home buyers who are looking for a way to save for a home.
The First Home Savings Account is similar to a Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA), but there are some key differences. An RRSP is capped at a $35,000 withdrawal. On the other hand, a TFSA allows you to collect savings tax-free, but you cannot take off any account contributions when reporting your taxable income. If you’re unsure which kind of product might be best for you, make sure you get in touch with a mortgage professional!
Why should you have one if you’re not ready for a home?
Even if you’re not ready to purchase a home, it’s still worth setting up a First Home Savings Account. $40,000 is a significant amount to put away, so if you’re planning to make use of this option, you can start saving now. Even if you cannot afford to contribute $8000 per year, that’s okay. The account permits users to carry over unused contributions into the next year, to add on top of the annual $8000 limit. This means by the time you are able to afford bigger contributions, you may be able to put in larger amounts.
If you are considering setting up an FHSA before the end of the year, it will allow you to start building your home buying savings sooner rather than later. However, it’s important to note that you must purchase a home within 15 years after opening this account. If you are unsure whether you want to buy a home, or do not plan to do so for several years, this might not be the best route to take. Instead, it’s worth considering a different kind of savings account like a TFSA or RRSP.
Although Canadians have several options in terms of savings accounts, it can be a bit overwhelming trying to determine which is best for you. The good news is you can consult a mortgage broker at any time to help you out! Whether you are hoping to purchase a home, or simply build up your savings, we can provide you with the information you need to choose the right option.
If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.