5 things to know before opening a first home savings account

globalnews.ca:

This article is part of Global News’ Home School series, which provides Canadians the basics they need to know about the housing market that were not taught in school.

Prospective homebuyers struggling to build up the down payment needed to break into Canada’s increasingly unaffordable housing market are often in need of every leg up they can get.

This month’s instalment of the Home School series takes a look at a new registered account that looks to make the process of saving up for a first home a little easier.

Pat Giles, vice-president of saving and investing at TD Bank, tells Global News that a first home savings account (FHSA) is an “absolute must-have” for would-be buyers thanks to the tax benefits that come with the savings vehicle.

“It’s really a no-brainer for any first-time homebuyers. That first home savings account is something you just have to get,” he says.

The federal government says that more than half a million Canadians had opened an FHSA as of January with the account on offer for less than a year.

But despite the opportunities an FHSA offers, how would-be buyers use the account can come with risks like any other investment strategy. Here are five things prospective homebuyers should know before they open their own FHSA.

The FHSA allows account owners to put as much as $8,000 in savings away annually, and up to $40,000 over five years. Contribution room starts growing the first year the FHSA is opened.

That money is tax-free on the way in and on the way out, meaning contributions can count as deductions on income tax and are not taxed when withdrawn for a down payment on a qualifying home.

Giles says the FHSA is “the best of both worlds,” with funds behaving like a registered retirement savings plan