How first-time home buyers can use an FHSA to save for a down payment
No matter how old you are or which stage of life you’re in, buying your first home is a big deal. It’s something many Canadians dream of and work toward for years, and it’s likely the biggest purchase you’ll ever make. But how much money do you really need to put a down payment on that first house or condo?
Home ownership is a huge goal, but you have a number of tools at your disposal, including the recently introduced first home savings account (FHSA), which enables Canadians to save up to $8,000 per year, to a lifetime maximum of $40,000, with tax-free growth and withdrawal.
Using an FHSA for your down payment
If you’re a prospective home owner, you may be interested in learning more about FHSAs. A powerful savings tool for first-time home buyers in Canada, an FHSA is a registered account that was launched by the federal government on April 1, 2023.
Who can open an FHSA?
To be eligible for this type of account, you must be a resident of Canada who is at least 18 years of age and not turning 72 or older in the same calendar year. You also must be a first-time home buyer, which is defined as someone who did not own a qualifying home that was used as a principal residence for any part of the five calendar years before the account is opened. If you are married or in a common-law partnership, your spouse must meet the same criteria.
How much can you contribute to an FHSA?
Account holders can contribute up to $8,000 to their FHSA per annum and carry forward up to $8,000 of their unused contribution allowance each year after the account is opened. There is a lifetime contribution limit of $40,000 on a FHSA, and while you can open multiple FHSA accounts, the total contributions cannot exceed that amount.
FHSAs have some similarities to registered retirement savings plans (RRSPs). For example, as with an RRSP, your FHSA contributions can be claimed as a deduction against all sources of taxable income—meaning the more you contribute to your FHSA, the less income tax you may have to pay. Also similar to an RRSP, if you overcontribute to your FHSA, you’ll incur a penalty, so pay close attention to your contribution limit.
Here’s a key difference between FHSAs and RRSPs to keep in mind: FHSA contributions for a certain year must be made within that calendar year, while RRSPs let you keep contributing toward a certain tax year in the first 60 days of the next year. So be sure to set up regular deposits throughout the year. The months of November and December are expensive times of the year already.
Can you combine the FHSA with the Home Buyers’ Plan?
The FHSA can be combined with other government programs including the Home Buyers’ Plan, First Time Home Buyer Incentive and the Home Buyers’ Tax Credit. Think of them as a collection of home-buying tools you can use together to optimize your savings and get you into your first home sooner. The FHSA is a relatively new financial product, so it is currently available from a limited selection of providers, including Fidelity.
How far will those savings go for you? It depends on your price range for purchasing a home and where you want to live. To give you a better idea of how much you’ll need to save to buy your first home, let’s look at the size of the down payment you would need in five capital cities across Canada.
What is the minimum down payment for a home in Canada?
Let’s start with the basics. A down payment is the amount of money you pay upfront when buying a home. The larger your down payment is, the smaller your mortgage loan will be. A smaller mortgage is a good thing, as this typically means lower mortgage payments and/or less interest paid over the life of your mortgage.
There’s no limit to how much money you can put down on a house, but there are minimum amounts based on the price of the property.
- When purchasing a home for $500,000 or less, the minimum down payment is 5% of the purchase price.
- If the home you’re purchasing costs $500,000 to $999,999, your minimum down payment will be 5% of the first $500,000 of the purchase price plus 10% of the portion of the purchase price above $500,000.
- Homes that cost $1 million or more have a minimum down payment of 20%.
But wait—there’s more. Your down payment will also determine whether or not you need to purchase mortgage loan insurance (also known as mortgage default insurance or CMHC insurance). This insurance is required if you put down less than 20% on a property and will add to your monthly carrying costs, so it’s important to factor these into your budget. Mortgage loan insurance isn’t available for homes priced at $1 million or more, which already have a minimum down payment of 20%.
How much do you need for a down payment in Canada?
The rules about minimum down payments are the same across Canada, but housing prices are not. This means that the amount you need to save for your first home will largely depend on where you want to live. To give you a good sense of what your minimum down payment may be, we looked at benchmark prices for all dwelling types (houses, townhomes, condos, etc.) across the country using data from late 2022. While your city may not be listed here, a comparable location could be. The national average in 2022 was $717,000.
| City | Benchmark home price (all dwelling types) as of Dec. 31, 2022 | Min. 5% down payment for homes priced at $500,000 or less | Min. down payment of 5% of the first $500,000 of purchase price; 10% of purchase price above $500,000 | Min. 20% down payment to avoid mortgage default insurance, and for purchase price of $1 million or more |
|---|---|---|---|---|
| Victoria, B.C. | $931,650 | n/a | $68,165 | $186,330 |
| Regina, Sask. | $321,642 | $16,082.10 | n/a | $64,328.40 |
| Winnipeg, Man. | $350,842 | $17,542.10 | n/a | $70,168.40 |
| Greater Toronto Area, Ont. | $1,195,950 | n/a | n/a | $239,190 |
| Fredericton, N.B. | $284,642 | $14,232.10 | n/a | $56,928.40 |
How much money do you need to buy a house in Victoria, British Columbia?
Benchmark price: $931,650 (19% increase in one year)
Want to plant your roots on Vancouver Island? This provincial capital isn’t cheap, but it offers an abundance of natural beauty, employment and educational opportunities, art and cultural assets and other valuable amenities.
Down payment: For a home at the benchmark price, you’ll need a minimum down payment of $68,165. If you wish to avoid paying mortgage loan insurance, you’ll need at least $186,330.
How much money do you need to buy a house in Regina, Saskatchewan?
Benchmark price: $321,642 (3% increase in one year)
Regina offers beautiful public parks, sports facilities and cultural spaces, as well as several post-secondary education institutions. Because it’s one of the most affordable capital cities in Canada, it’s a great option for first-time home buyers looking for a family home.
Down payment: For a home at the benchmark price, you’ll need a minimum down payment of $16,082.10, or put down at least $64,328.40 to avoid mortgage loan insurance.
How much money do you need to buy a house in Winnipeg, Manitoba?
Benchmark price: $350,842 (7% increase in one year)
Winnipeg may be known for its cold winters, but it also has excellent amenities for residents. Between the sports, arts, entertainment, attractions and burgeoning culinary scene, Winnipeg has a lot to offer, plus great housing affordability.
Down payment: For a home at the 2022 benchmark price, you’ll need a minimum down payment of $17,542.10. To avoid mortgage loan insurance, you’ll need to put down at least $70,168.40.
How much money do you need to buy a house in the GTA?
Benchmark price: $1,195,950 (15% increase in one year)
With plenty of urban and suburban settings to choose from, the Greater Toronto Area offers excellent career opportunities, post-secondary institutions, sports and entertainment venues, cultural centres and more. And while Toronto is known as a concrete jungle, it has numerous greenspaces, including public parks and conservation areas.
Down payment: Since the benchmark price is above $1 million, you would need a 20% down payment (or $239,190) to purchase a home at the 2022 benchmark price.
How much money do you need to buy a house in Fredericton, New Brunswick?
Benchmark price: $284,642 (20% increase in one year)
A charming east coast capital close to many natural attractions, Fredericton is an affordable city with a small-town feel and a steadily increasing price tag. It may be on the lower end of benchmark prices, but its annual increase is definitely on the higher end.
Down payment: For a home at the 2022 benchmark price, you’ll need a minimum down payment of $14,232.10, or bump it up to at least $56,928.40 to avoid mortgage loan insurance.
As you can see, minimum down payments vary widely. Once you have a location and price point in mind, use our down payment calculator to estimate how much you’ll need.
From money in the bank to a key in the door
Canadian home buyers have more tools than ever to work towards their goal. With planning, discipline and dedication to your goals, you’ll be well on your way to signing off on a property you love. Expert advice can help you navigate the complexities of first-time home ownership and get you closer to that first home—and before you know it, you’ll be shopping for the perfect welcome mat.
More about real estate:
- Where to Buy Real Estate in Canada 2023
- Every mortgage calculator you will ever need
- How it works: Capital gains tax on the sale of a property
- Buying a second home: Home it works in Canada
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