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Learn how the Home Buyers Plan can help you save aggressively for a down payment on your dream home.
Owning Your First Home Is Easier Than You Think
After my wife and I married, we decided to slash our spending and track our expenses to save aggressively for a down payment on a home.
This wasn’t the birth of our budget. Instead, we were spending less than we earned, but we had no idea how much savings power we gave up going this route until the CBB Budget was created.
Once we felt we were nearing our 20-25% down-payment goal that we wanted to have for a house priced around the $200,000-$300,000 price tag, we started chatting with a real estate agent.
Thankfully, a friend has served our community as an agent for many years.
Since I was new to Canada, one of the questions was whether we could participate in the RRSP Home Buyers Plan (HBP) for first-time home buyers in Canada.
It was clear that I had never purchased a home in Canada before, but this wasn’t Mrs. CBB’s first real estate rodeo.
It was still worth looking into, though.
If the HBP means nothing to you right now, don’t worry.
I felt the same at one point, so I had to learn about the process and whether we would qualify for it.
What is the Home Buyers Plan (HBP)?
In a nutshell, it is a federal system where you borrow money from your Retirement Savings Plan (RSP) and use it to make a down payment to purchase your first home.
This system is widely known as the RRSP Home Buyers Plan.
This is the only time you can do this without penalty.
The catch is you still have to pay yourself back or risk your income tax return taking a hit.
You will either pay it back in 15 years (1/15th per year), or the 1/15th amounts are added to your yearly taxable income.
This means you essentially have two mortgages, a bank mortgage, and an RRSP mortgage to pay back.
The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
Related: How to create a test budget before you buy your first home
Who would be considered a person with a disability?
A Person with disability – you are considered a person with a disability if you are entitled to the disability amount.
For purposes of the HBP, a person with a disability includes you or someone related to you by blood, marriage, common-law partnership, or adoption.
A related person with a disability does not have to reside with you in the same home.
Home Buyers Plan Eligibility
Am I eligible to participate in the Federal HBP?
Well, yes and no, depending on a couple of factors.
- You are a First Time Home Buyer
- You must have a written agreement to buy or build a home.
Unless you are a person with a disability or you are helping a related person with a disability buy or build a qualifying home, you have to be a first-time home buyer to withdraw funds from your RRSP(s) to buy or build a qualifying home.
You must meet RRSP withdrawal conditions to participate in the Home Buyers’ Plan.
- You must be a resident of Canada.
- You cannot withdraw over $35,000; it must be done in the calendar year.
- You or anyone else related to the home purchase, with or without a disability, can own the home for more than 30 days before you withdraw the money.
- Your locked-in RRSP or a work RRSP may not qualify for this program
- RRSP contributions must be included in the investment for at least 90 days before being used for the HBP.
- You must buy or build a qualifying home.
- You must intend to occupy the qualifying home as your principal residence within one year of buying or building it.
- You must fill out a Withdrawal Home Buyers’ Plan Canada Form.
Financial Tips For Buying A Home
If you don’t qualify for the RRSP Home Buyer’s Plan, you can use your Tax-Free Savings Account or Savings you have set aside for your down payment.
Ideally, saving as much as possible before buying a house is the best way.
We paid our $265,000 house off in five years with an $80,000 down payment, again using the aggressive pay-down method.
Paying Your Mortgage FAST
What is the Aggressive pay-down method?
This is where we put as much money as we could each year into paying down our outstanding mortgage and accelerated weekly payments.
It was more about security than having a mortgage, so paying it off was a priority.
Related: How we paid our mortgage off in 5 years
Take advantage of the RRSP Home Buyers Plan
Not Qualifying For The Home Buyers Plan
Ultimately, we didn’t qualify for the RRSP Home Buyers Plan since Mrs. CBB had been a homeowner in Canada for over five years previously, but you might be eligible, so don’t pass it up.
Whether Home Buyers Plan is correct depends on how vital debt freedom is to you, how fast you want to get there, and your short- and long-term financial goals.
I also wasn’t aware that RRSP investments must be in the plan for 90 days before you can get the tax deductions, only if it is done in the same year.
Unfortunately, I was starting work in Canada and didn’t have the money to invest in an RRSP since my money was back in the UK, but my wife did.
It wouldn’t have mattered since we were disqualified from the RRSP Home Buyers Plan, but we felt better that we explored the option.
When unsure, it’s essential to talk to professionals in the finance industry who understand investing and the RRSP Home Buyers Plan.
Even when you think you know everything, there is always something to learn, especially when purchasing a home.
If money is to be made or saved, you must have a financial situation right for you and your bank account.
Discussion: Did you purchase your first home using the RRSP Home Buyers Plan?
Contribution: This post was sponsored by Sun Life Financial, but all opinions are my own as I am a Sun Life Customer.
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