Purchasing Your First Home Using a Home Buyers’ Plan
Nothing is more satisfying than having your very own home. And despite the economic trouble caused by the pandemic, the real estate market continues to power through. In fact, the Canadian Real Estate Association reports that national home sales hit a record of 544,413 units in 2020, which was an 11.1% increase from 2019. This is largely because of record-low mortgage rates, which should continue to stay low for the next three years.
All this makes for a unique opportunity for people to purchase a house at affordable rates. And if this is your first time buying a home, there's one financial program you can apply for — the Home Buyer’s Plan (HBP). Here's everything you need to know about it.
What is the Home Buyer’s Plan?
The HBP is only available for people who have an active Registered Retirement Savings Plan (RRSP). It's a program that allows RRSP account owners to withdraw money for the purpose of buying or building a house. Normally, withdrawing your RRSP early means subjecting the withdrawal to multiple taxes, such as withholding tax and provincial tax. However, the HBP allows you to take up to $35,000 — up from $25,000 in 2019 — from your RRSP account tax-free. The price is per individual, so couples can get up to $70,000 because they share assets.
From there, you have 15 years to pay the amount back to your RRSP, starting from the second year after you withdraw the funds.
Do I qualify for the HBP?
To qualify for the program, you must:
- Be a Canadian resident
- Be a ‘first-time’ home buyer
- Intend to occupy the home within one year after purchasing or building it
- Have a written agreement about your intention to buy a home
Take note that the Canada Revenue Agency’s (CRA) definition of ‘first-time’ home buyer is either a) someone who has never owned a house before; or b) someone who has never lived in a house they own in the last four years. As such, it’s possible to participate in the HBP more than once. You just need to have already paid your previous HBP loan in full by January 1 of that year and meet all the requirements listed above.
If you’re unsure about your eligibility, you can contact the CRA directly. Their hotline is 1-800-959-8281.
You can also apply for another HBP if you’re proxying for a related person with a disability.
How do I withdraw my RRSP money?
You don’t have to withdraw your $35,000 in one go or even reach the maximum amount. But every time you do, you need to fill out Form T1036, or the HBP Request to Withdraw Funds from an RRSP, and send it to the CRA. Take note that the funds you intend to withdraw for buying your first home should be on deposit for no less than 90 days.
Overall, as long as you have an RRSP, a house is more accessible than you think. Just be sure to research on your neighbourhood well and see if any property or location strikes your fancy.
If you need more help, here’s our list of tips for first-time home buyers.
Photo credits: freepik.com