Understanding the Home Buyers’ Plan

A house is the most expensive purchase you will ever make. In order to successfully make this purchase you will require a significant down payment, a minimum of 5-20% of the total value of the home. For first-time home buyers in Canada, there are programs available to give you an advantage in coming up with a down payment for your first home.

The Perks of the Home Buyer’s Plan

The Home Buyer’s Plan (HBP) is a program run by the federal government through the Canada Revenue Agency. This program allows first-time home buyers to make a tax-free RRSP withdrawal toward the purchase or construction of a home. This is a significant benefit as the withdrawal can be up to $25,000. If you are buying a house with another first-time home buyer such as your spouse, they too will be eligible for a $25,000 RRSP withdrawal. This benefit is obviously not helpful if there are no RRSPs held, so if it’s your long term plan to build or buy a house it’s wise to contribute as much as possible into RRSPs. Saving money through RRSPs also provides you with a tax reduction each year. These tax savings can also be applied toward your down payment. You must intend to occupy the home as your principal place of residence within one year of construction or purchase.

Perks for Non-First-Time Home Buyers

Although the HBP is geared towards first-time home buyers, it does provide help in two other situations. You can withdraw from your RRSPs tax-free if you are building or buying a house for a disabled person to whom you are related, or if you wish to provide the withdrawn funds to a related disabled person to build or buy a home. However, not every home qualifies for this exemption. The home must be more accessible to or better suited to the needs of your disabled relative.

Good to Know

Under the home buyer’s plan you can withdraw from your RRSPs and have it not count as income for the year. You must repay all funds you withdrew within 15 years by contributing each year. Normally there is a minimum amount you need to contribute each year and if you don’t fulfill the requirements the amount owing that year will be added to your income for tax purposes. Do not enter into the biggest purchase of your life without knowing all the facts. Doing the proper research and finding out what programs are available to first-time home buyers will make the daunting task of buying a house that much easier. Make an appointment to speak with your mortgage advisor to understand how the Home Buyer’s Plan can help you bring your dream of home ownership one step closer to reality.