One of the most common questions I get from first-time buyers is: “How do I actually save for a down payment?”. Specifically, they wonder which accounts should be contributed to and in what order.
Watch my video or read on for more details:
Should I Contribute to my FHSA?
The First Home Savings Account is the newest tool available to first-time buyers, and it should be your first stop. You can contribute up to $8,000 per year, and like an RRSP, those contributions reduce your taxable income, which usually means you get a tax refund. When you’re ready to buy, you withdraw the money tax-free and you don’t have to pay it back.
It combines the best features of an RRSP and a TFSA, and it was designed specifically for this purpose.
Should I Contribute to my TFSA?
Once you’ve maxed out your FHSA contribution for the year, the Tax-Free Savings Account is a solid second choice. You don’t get a tax deduction on contributions, but your money grows completely tax-free. When you pull it out for your down payment, there’s no tax owing and no repayment required.
Should I Contribute to my RRSP?
The RRSP used to be the primary route for first-time buyers through the Home Buyers’ Plan. It still works, but it comes with more strings attached.
You can contribute each year and get a tax deduction, similar to the FHSA. And through the Home Buyers’ Plan, you can withdraw up to $60,000 toward a first home purchase. The key difference is that you have to pay that money back. The government wants it returned to your RRSP over time, because when you retire and withdraw it, they’ll tax it then.
It’s still a useful tool, but given the FHSA and TFSA options available now, the RRSP is generally the third choice for down payment savings.
Final Thoughts
Here’s a simple summary of what you’ve just read:
- FHSA first — tax deduction going in, tax-free coming out, no repayment required.
- TFSA second — tax-free growth, no repayment required.
- RRSP third — tax deduction going in, but repayment required after withdrawal.
Whether you are preparing to buy your first home or your fifth, if you’re looking to get pre-approved for a mortgage in Edmonton, fill out my online application. I’m here to help you every step of the way.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’m trusted partner who will help you get the right mortgage for your home or investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
