Maximize Your First Home Savings: Combining FHSA, TFSA, and HBP for Homeownership in Canada

Buying your first home is a significant milestone, but saving enough for a down payment can feel overwhelming. Thankfully, Canadians have access to three powerful tools to make homeownership more accessible: the First Home Savings Account (FHSA), the Tax-Free Savings Account (TFSA), and the Home Buyers’ Plan (HBP). By strategically combining these accounts, you can maximize your savings, minimize your tax burden, and fast-track your journey to owning a home.

What Are FHSA, TFSA, and HBP?

First Home Savings Account (FHSA)

•Key Features: Combines the benefits of an RRSP and TFSA. Contributions are tax-deductible, and withdrawals for a first home are tax-free.

•Contribution Limit: $8,000 annually, up to $40,000 lifetime.

•Eligibility: Must be a first-time homebuyer and 18 years or older.

•Best Use: Saving specifically for a home while growing investments tax-free.

Tax-Free Savings Account (TFSA)

•Key Features: Offers tax-free growth and withdrawals for any purpose, including buying a home.

•Contribution Limit: $6,500 annually (2024 limit), with unused room carried forward.

•Eligibility: Available to all Canadians 18 or older with a valid SIN.

•Best Use: Flexible savings for short- and long-term goals, including a home down payment.

Home Buyers’ Plan (HBP)

•Key Features: Allows you to withdraw up to $35,000 ($70,000 per couple) from your RRSP tax-free for a down payment.

•Repayment Requirement: Must repay the amount into your RRSP over 15 years.

•Eligibility: Must be a first-time homebuyer or meet specific criteria if separated or divorced.

•Best Use: Supplementing a down payment with existing RRSP savings.

How to Combine FHSA, TFSA, and HBP

Step 1: Maximize Your FHSA Contributions

•Open an FHSA and contribute the maximum $8,000 annually. Take advantage of the tax-deductible contributions and invest your funds to grow them tax-free.

•Example: Over five years, contributing $8,000 annually with a 5% annual return can grow your savings to over $44,000.

Step 2: Use a TFSA for Flexible Savings

•Use your TFSA to save for additional down payment needs, unexpected expenses, or closing costs. Unlike the FHSA, TFSAs don’t have a withdrawal restriction, making them ideal for emergencies.

•Example: Contribute $6,500 annually with a 5% annual return, growing to nearly $35,000 in five years.

Step 3: Leverage the HBP for Extra Savings

•Tap into your RRSP savings using the HBP to withdraw up to $35,000 per individual or $70,000 per couple.

•Combine HBP funds with FHSA and TFSA savings to significantly increase your purchasing power.

Step 4: Plan Your Withdrawal Strategy

•Withdraw from your FHSA first to maximize the tax-free benefits.

•Use HBP funds to supplement your down payment, ensuring you meet repayment obligations within 15 years.

•Keep TFSA funds as a backup for unexpected costs or future renovations.

Benefits of Combining These Accounts

1.Boost Your Down Payment: By combining FHSA, TFSA, and HBP, you can access up to $100,000+ as an individual or $150,000+ as a couple for your first home.

2.Reduce Taxable Income: Contributions to FHSA and RRSPs (for HBP) lower your taxable income, saving money at tax time.

3.Flexibility and Growth: The TFSA offers unmatched flexibility for savings, while FHSA and HBP focus on tax-advantaged growth and withdrawals.

Example: Combined Savings for a First Home

•Scenario: A couple is saving for a $500,000 home in Calgary.

•FHSA: $40,000 each = $80,000.

•HBP: $35,000 each = $70,000.

•TFSA: $20,000 each = $40,000.

•Total Available Funds: $190,000, covering a 38% down payment and reducing mortgage insurance costs significantly.

Things to Watch Out For

1.HBP Repayment Rules: Ensure you repay RRSP withdrawals over 15 years to avoid penalties.

2.FHSA Time Limits: Funds must be used within 15 years of opening the account.

3.Over-Contribution Penalties: Monitor contribution limits for all accounts to avoid penalties.

Next Steps

Combining FHSA, TFSA, and HBP is a game-changing strategy for first-time buyers in Canada. By leveraging the unique advantages of each account, you can save smarter, buy sooner, and reduce the financial stress of homeownership.

Ready to take the next step? Let’s create a personalized savings plan for your dream home.

Contact Hasan Sharif

📧 hasan.sharif@exprealty.com

📞 403-808-9705

Future Articles

•“FHSA vs. TFSA: Which is Best for First-Time Homebuyers?”

•“Navigating HBP Repayment Rules Without Affecting Retirement Savings”

•“How to Optimize Your FHSA Investments for Maximum Growth”

•“Common Mistakes to Avoid When Using FHSA, TFSA, and HBP Together”

•“Step-by-Step Guide to Setting Up FHSA, TFSA, and HBP Accounts”