Thinking about buying your first home? The First Home Savings Account (FHSA) is one of the most effective tools for first-time home buyers to save for their first home. In this blog, you’ll learn how to use your FHSA effectively, including smart ways to combine it with your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) to grow your down payment even faster.
How to set a savings goal using your FHSA?
Before you start saving for a home, it’s important to set a clear goal. Without one, it’s easy to lose focus, underestimate how much you’ll need, or feel discouraged by a target that feels out of reach. A goal gives you a roadmap, helping you understand how much you need to save, how long it might take, and what steps you’ll need to take to get there.
If you’re not familiar with how a First Home Savings Account (FHSA) works, take a moment to read our FHSA guide first. It explains the account, its tax benefits, and why it’s a valuable tool for first-time homebuyers
When using an FHSA (First Home Savings Account) to save for your first home, start by figuring out the type of home you want and where you’d like to live. That will give you a rough purchase price, which helps determine the down payment you’ll need.
With an FHSA, you can contribute up to $8,000 annually and a lifetime limit of $40,000. Once you know your savings target, break it down into monthly or weekly contributions to make your goal more manageable. Setting up automatic transfers can help you stay on track without the stress of remembering to contribute, so you don’t have to think about how much you’ll need to contribute throughout the year.
Here is a breakdown of contributions to reach the annual and lifetime contribution limit:
| Purchasing a home in years: | To reach the lifetime contribution limit, invest this amount weekly: | To reach the lifetime contribution limit, invest this amount monthly: |
| 5 years | $153.84 | $666.66 |
| 10 years | $76.92 | $333.33 |
| 15 years | $51.28 | $222.22 |
Need help getting started? We can help you create a customized savings plan that fits your home-buying timeline and financial goals. With advice tailored to you and your goals, we make saving for your first home simple and stress-free.
Timing Your Contributions for Maximum Impact
If you’re able to contribute the full $8,000 FHSA annual limit at the start of the year, it gives your money more time to grow tax-free. But even if you can’t contribute the full amount right away, every dollar you contribute still helps towards buying your first home and benefits from tax-free growth.
It’s important to start when you can, even with a smaller amount. Opening an FHSA now means your contribution room begins to accumulate, and any unused contribution room carries over for one year. So even if you know you’ll have more funds available next year, it’s still worth getting started today.
Let’s compare maximum contribution scenarios and see the differences:
- Contributing $8,000 annually at the beginning of every year for 5 years at a 5% return*, your savings will grow to $45,064 with $5,064 in tax-free savings
- If you invested $666.66 monthly for 5 years at the same return, you’ll have $44,264, and $4,264 is tax-free growth.
*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
While contributing early and the total maximum amount may generate more growth, you can still make meaningful progress in other ways. Consistent contributions that fit your personal goals and needs will allow you to save for your new home at your own pace. Our Mainstreet advisors will work with you to create a strategy tailored to you and your goals.
How Should You Invest in Your FHSA?
You can hold a variety of different types of investments in your FHSA, so it’s essential to understand the available options to find the right fit for your goals. Choosing the right investment depends on your timeline, comfort level, and homebuying goals. Each investment has unique benefits and risk levels. Here they are broken down:
High Interest Savings Account: If you plan on buying a house in 1-2 years, a high-interest Savings Account (HISA) offers flexibility. While it may pay lower interest, the funds are available to take out immediately. Ideal for short-term plans.
Term Deposits: If your timeline is a longer term, consider a term deposit, also known as a Guaranteed Investment Certificate (GIC). These typically earn more interest than a HISA and lock your rate in for a set period. If your GIC hasn’t matured when you’re ready to buy a home, don’t worry, our Mainstreet advisors will work with you to find a solution to use your FHSA.
Mutual Funds: These investments pool money from many investors to create a diversified portfolio. Mutual funds are a collection of stocks, bonds, or other assets. They’re ideal for a wide range of investors who want a diverse portfolio without picking individual investments.
If you’re still unsure, our advisors will provide personalized advice that fits your needs, risk, and goals. No matter what, your earnings will grow tax-free inside your FHSA.
How to combine FHSA + TFSA + RRSP Home Buyers’ Plan
You can boost your down payment by combining your FHSA with other savings tools like the Home Buyers Plan (HBP) and your Tax-Free Savings Account (TFSA).
The Home Buyers’ Plan (HBP) allows you to withdraw up to $60,000 from your RRSP tax-free to put toward your first home. For example, let’s say you have $40,000 in your FHSA and a further $60,000 in your RRSP; you can use the entire $100,000 towards your home purchase. Just remember, withdrawals from your RRSP for the HBP require you to pay it back over 15 years. If your partner is also eligible for the HBP, they too can use up to $60,000 from their RRSP along with their TFSA or other savings for a downpayment.
Your TFSA can be another powerful piece to help you save for a down payment. While you don’t receive the benefit of a TFSA contribution coming off your income for the year, you do benefit from tax-free growth. Therefore, if you have fully used up your contribution room for your FHSA and RRSP, you can still save more funds in a TFSA and benefit from the tax-free growth that you can withdraw to use towards your down payment.
If you’re not sure which combination works best for you, our Mainstreet advisors will work with you to look at your combined investments and review your finances to ensure you make the right choice when you are ready to buy a home.
Mistakes to Avoid When Using Your FHSA
Using your FHSA effectively means avoiding some common missteps that could cost you in the future. Here are some common mistakes to avoid:
Overcontributing: If you go over your annual or lifetime contribution limit, you could face a 1% penalty tax per month on the excess amount for as long as it stays in your account. Be sure to track your contributions and stay within the limits.
Not taking full advantage of your $8,000 contribution room: If you’re able, try to contribute the maximum, especially since you can only carry unused contribution room for one year. This will also help you on your tax return when you file your income taxes.
Don’t be afraid to open your FHSA before you start contributing. Once you do this, it will allow you to contribute more the following year because of the previous year’s unused contribution room.
Make sure you qualify before opening your First Home Savings Account: To qualify for an FHSA you must:
- Be a Canadian Resident
- Be 18 years old (or the age of majority in your Province/Territory)
- 71 years or younger
- Have not owned a home in the current year or the previous 4 calendar years.
Misunderstanding FHSA withdrawal rules: To use the FHSA, you must be purchasing a qualifying home in Canada.
- Single-family homes
- Semi-detached homes
- Townhouses
- Mobile homes
- Condominium units
- Apartments in duplexes, triplexes, fourplexes, or apartment buildings
- A share in a co-operative housing corporation that entitles you to own and gives you an equity interest in a housing unit
- The home must be your principal residence
- You must have a written agreement to buy or build a qualifying home before October 1 of the year following the date of withdrawal
- You must not have acquired a home more than 30 days before making the withdrawal.
Our advisors will work with you to explain all the details of an FHSA, with clear explanations whenever you need. We’ll ensure you understand the rules and use your FHSA with confidence.
Book a Savings Plan Appointment
At Mainstreet, we’re here to help you make the most of your FHSA and feel confident about your first home purchase. Our advisors can guide you through your options, create a plan that fits your budget and timeline, and show you how to maximize your savings along the way.
Saving for a home can feel overwhelming, but it doesn’t have to. We’ll work with you—whether in person, by phone, or online—to create a straightforward plan that makes your goal more attainable.
Ready to take the next step? Book an appointment with a Mainstreet advisor today and start building your path to homeownership.
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.