Using your RRSP to help buy your first home
By Linda Lamarche 11 March 2019 2 min read
For most people, buying a home is life’s most expensive purchase—and step one is coming up with the down payment. One option for sourcing your down payment is to tap into your RRSP through the Home Buyers’ Plan (HBP). While most RRSP withdrawals are taxable and result in a loss of contribution room, the HBP provides tax-free access to RRSP savings to be used as a down payment on your first home.
If you are considered a first-time homebuyer and have most of your savings inside an RRSP, the HBP might be a good option. But like most government programs, the HBP comes with some conditions, so this isn’t a resource that will work for everyone.
Conditions for using your RRSP to buy a home
To start, here are the three most important conditions:
- You have to be considered a first-time homebuyer
- You cannot withdraw more than $35,000
- You have to repay the funds that you withdraw back into your RRSP (or have the required repayment added to your taxable income)
If the three conditions above work for you, then the rest is relatively straightforward:
- You have to enter into a written agreement to buy or build a qualifying home
- You have to intend to occupy the qualifying home as your principal residence no later than one year after buying or building it
- Your HBP balance on January 1 of the year of the withdrawal has to be zero, meaning you have to put all the RRSP funds you withdrew into the purchase of your new home
- Neither you nor your spouse or common-law partner can own the qualifying home more than 30 days before a withdrawal is made
- You have to receive all withdrawals in the same calendar year
- You have to buy or build the qualifying home before October 1 of the year after the year of the withdrawal
It’s important to note that there are special considerations for people with disabilities or relatives who are purchasing a home for a person with a disability. The details of the Home Buyers’ Plan can be found on Canada Revenue Agency website.
What about using your TFSA to fund a down payment?
HBP conditions don’t suit everyone, so using a Tax-Free Savings Account to fund a down payment can be quite appealing: there are no conditions or limits on withdrawals and no need to repay the funds. However, because the TFSA is a fairly new account with a contribution limit of $5500 ($6000 annually as of 2019) per year, most Albertans likely don’t have enough savings built up in a TFSA to adequately fund a down payment. The RRSP is a much more established savings vehicle, so the average Albertan is more likely to have enough savings to be used for a down payment inside of an RRSP than a TFSA. Of course, if you are eligible to use the HBP, you can still top up your down payment with funds from your TFSA.