The process of buying a house is becoming more difficult to Canadians. However, there’s a new option to help homebuyers get their foot on the ladder of housing.
In April, buyers who are first time buyers can start a savings account ( FHSA). The account was specifically created to assist buyers who are first time buyers when they purchase the first house they own.
It is a combination of the benefits in two registered accounts that are registered: The registered retirement savings program ( RRSP) and the savings account that is tax-free.
An FHSA offers a tax-free protection for investments, while also turbocharging the increase in savings to the down payment on a home. If a tax payer contributes to their FHSA and pays taxes, the amount is reduced for the current year. In addition, if the funds are used to purchase the first home of a homeowner, no tax is due.
In the beginning the federal government stated that the FHSA could not be used together with Home-Buyers Program which allows individuals to take out loans from their RRSP to fund the purchase of a house. The situation has changed since then and taxpayers have been told they are able to use both programs together.
The finer things
Are there any catches? It’s not really However, there are certain guidelines to adhere to. In order to be eligible for the FHSA it is necessary to be over 18 and have not had a residence in the past four years.
Contributions are limited to $8,000 per year or up to $40,000 in the course of your life. The funds for purchasing the home you want to buy must be utilized by the end of 15 years (or when you reach 70).
A lot of first-time buyers might find it challenging to save $8,000 in one year. The good thing is that you can carry forward the contribution allowance into the next year.
A pedestrian walks by a variety of for-sale and sold real property notices located in Mississauga,
It’s important to know it is the most you are able to contribute to the FHSA at any time is $16,000. This includes $8,000 of the current year, and $8,000 of unutilized of the previous year’s tax..
What happens if the circumstances change and you decide to buy a house? Perhaps you do purchase an apartment, but there’s still money left? Don’t worry — you can transfer those funds into your RRSP without affecting the RRSP contribution space.
Do millennials deserve to be happy?
Statistics Canada data shows that the number of homeowners has decreased between 2011 and 2021 and the largest decrease occurring among young people aged between 25 and 34.
The major challenges of homeownership are the expensive real estate prices as well as high costs for borrowing and the rising cost of living more rapidly than wage inflation ( though wages are slowing but surely catching up). One method to gauge the difficulty is by using an index of affordability. the Bank of Canada’s index of affordability for housing.
A graph illustrating the index of affordability for housing in Canada between 2000 and 2023. (The Bank of Canada)
The index of housing affordability shows the difficulty of being able to purchase a house by measuring the cost of housing (mortgage payments and utility charges) in relation to household income. The range has been from 45 to 50 percent lately, which is much more than in previous years.
The latest index indicates that the average family needs to sacrifice around 50% of their income to buy a house. Therefore, while the FHSA could be a source of hope for those saving to make the down payment on your first property, cost of living is still very expensive.
FHSA increases first-time buyers’ odds
If a first-time home buyer will be willing to forgo an amount of their income per month to purchase their first home They will first require an amount to pay for their down. What can the FHSA enough to help first-time buyers who are trying to save up for their down amount?
There are those who see that the $40,000 maximum amount of contribution for an FHSA as an unimportant amount when compared to the down payments required for homes located in more expensive Canadian markets. For Vancouver, Toronto and Victoria there is a 20 percent down payment on the median price of a home will be $238,471, $227.514 or $204,149 for each.
A recent study revealed that 25% of first-time buyers rely on assistance from their relatives or parents for their monthly mortgage payment. 35 percent needed assistance with the down payments.
A similar survey of buyers who are first time buyers revealed that 70% of those surveyed feared losing the opportunity to buy a house due to a lack of down amount.
But, many first-time buyers are able to start by purchasing less expensive homes initially and the FHSA could assist them in getting in the market sooner. However, this may require some time due to the annual contribution of $8,000 amount.
The impact of the FHSA isn’t immediate and isn’t a perfect solution, it’s an important move towards an appropriate direction. For a lot of Canadians the idea of owning a house is a source of the security and sense of belonging. The FHSA could play a major part in making the dream more accessible to first-time buyers, assisting them to arrive at the point when they finally have the keys to their front door.