Buying a first home is unarguably one of the most significant milestones every person will cross because the entire process can be daunting. To ease the process and encourage aspiring homeowners, the government of Canada and other financial institutions offer different incentives like the First Home Savings Account.
Before you plan to buy your first house with a financial planner in Edmonton, we will be delving into all the details of a First Home Savings Account. If you’re looking to enter the real estate market in Canada, you might want to pay close attention to this.
What is a First Home Savings Account
First Home Savings Account is a specially designed financial product created to help people save money specifically to buy their first home. It is a timely initiative targeted at assisting Canadian citizens to save enough money for their first property purchase while they enjoy some benefits.
As expert financial planners in Alberta, we have in-depth knowledge of what an FHSA entails, and we have put together some of the remarkable benefits of having an FHSA account.
Features and Benefits
Similar to many streamlined accounts (like a TFSA account) offered by the Canadian government, every FHSA account enjoys tax advantages. These advantages encourage Canadians to save for their first home. Contributing to your FHSA reduces your taxable income, which can benefit people with high earnings.
To break down how this advantage works, if you earn $80,000 and take out $5,000 for your FHSA account, you would be taxed on only the remaining $75,000. The $5000 paid into the FHSA account is untaxed, which saves you thousands of dollars.
Many financial institutions in Canada offer Canadians different high-interest savings accounts to help people save to purchase their first home or save for retirement. These accounts are structured to allow your savings to grow faster than they would in a regular savings account.
If you have a need, you can withdraw money from your FHSA tax-free. This tax-free benefit is similar to that of the TFSA account but far different from the one in the RRSP account because money taken out of an RRSP will be taxed like your regular income. However, any withdrawal made from an FHSA account must be for the purchase of your home.
Different provinces in Canada have introduced diverse incentives to support and encourage first-time home buyers. These incentives include tax credits, small grants to supplement your savings, and down payment assistance. If you’re unsure about how you can take advantage of this based on your current location, speaking with a seasoned Edmonton financial advisor will help.
An example of this incentive is the British Columbia Homeowner Mortgage and Equity Partnership program which has now shut down. The program offered first-time homebuyers interest-free loans while the FTHBI (First-Time Home Buyer Incentive) set up by the federal government provides mortgages with shared equity.
FHSA Eligibility and Things to Consider
There are a lot of things to consider when you want to open an FHSA, but most importantly, you must know the qualification criteria. To open a First Home Savings Account, you must be a Canadian resident and a first-time home buyer.
The money you save in your FHSA can only be used to purchase your first home of primary residence, and you can contribute up to $5000 per year to the account. This doesn’t necessarily have to be in monetary form, because you can invest the money in different savings products. Seeing a financial advisor in Alberta will make the decision-making process easier for you.
Additionally, the account must have been open for 90 days (about 3 months) before you can make withdrawals from it. For more FHSA information about your eligibility and to determine if having an FHSA is right for you be sure to discuss it with a financial advisor in Edmonton.
How to Utilize a FHSA
To make the best of your FHSA, there are certain things you need to put in place.
Set Achievable Goals
What kind of house do you plan to purchase? This should be the first question you answer because it will guide your goals and help you determine how much you need to save. In addition to this, you need a realistic timeline and a clear target for achieving your goals. Having a very clear target for achieving your goals will help you create an effective savings strategy.
An Alberta financial planner can also help you create an effective savings strategy, to achieve your goals at the set time.
Create the FHSA Account
Find a financial institution that offers a First Home Savings Account and open the account with them. Make sure you read through and understand the terms, potential fees, and interest rates associated with the account before you finalize with them. Also, compare these offerings with those of other banks and pick the bank with offerings that align with your goals the most.
To make regular contributions to your account easy, set up automatic transfers or deductions. This will ensure that there will be a steady flow of funds to your account, and you can easily track the money leaving the account.
Monitor Your Progress
Always review the progress of your savings to know if you need to make adjustments to your contributions. The price of houses and financial situations might change and evolve as time goes by so you might need to change and adapt your strategy where necessary.
Explore Other Incentives
There may be other incentives and offerings for first homeowners, that you’re unaware of. So, in addition to your savings account, explore other grants or government incentives available in your province for you to take advantage of. That’s why it is advisable to work with a seasoned financial planner, so you won’t miss out on any unpopular incentives.
A Financial advisor in Edmonton already has all the information and working strategies to help you easily achieve your goal of owning a home. Consulting a financial planner is a major step, so it’s important you work with trusted planners like the ones at DeHaan Private Wealth. We are certified and approved by the relevant financial authorities in Canada. To discuss your financial concerns and goals, contact us for professional help and advice.