Federal budget delivers game-changer for first-time homebuyers

Most Manitobans are well aware of how much real estate has skyrocketed in recent years. By the end of 2021, home prices in Winnipeg had risen by 9.6% year-over-year. In fact, the average cost of a home in Winnipeg ended the year at $357,000. 

For many would-be first-time homebuyers, there are several obstacles to affording a home at this price. 

Firstly, it can be a challenge qualifying for a mortgage that’s large enough to buy a home you really love. Secondly, saving enough money to make the down payment and cover closing costs can take many years. 

Let’s look at that average home, priced at $357,000. If you didn’t want to pay mortgage default insurance, you would need a down payment of at least 20%, which would be $71,400. Even the absolute minimum down payment allowed — 5% — would work out to be $17,850. Given that home rentals have also seen considerable increases in recent years, saving that amount of money can be a struggle for many Manitobans. 

Thankfully, the latest federal budget introduced new measures aimed at helping first-time homebuyers to save faster. 

The new Tax-Free First Home Savings Account (FHSA)

The new FHSA is aimed specifically at first-time homebuyers. It combines the benefits of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). As with an RRSP, the FHSA will allow Canadians to save with all contributions being tax deductible. 

What this means is that every dollar contributed will be eligible for a full tax refund. And, as with a TFSA, those dollars can grow in the account completely tax free — you won’t pay any tax on interest, dividends or capital gains. And when the money is taken out to pay for a new home, withdrawals will be tax free. 

Most working Canadians would receive a tax break from the new account, often in the form of a considerable tax refund, which they could also contribute to their FHSA. This new account could make saving for a first home a lot quicker.

Who is eligible for a Tax-Free First Home Savings Account?

The FHSA will be available in 2023.

Residents of Canada aged 18-plus will qualify, as long as they haven’t lived in a home which they owned either at any point in the year they open the account or the preceding four years.

What are the Tax-Free First Home Savings Account contribution limits?

There will be an annual contribution limit of $8,000 per account holder, with a maximum lifetime contribution limit of $40,000. Unlike with a TFSA, contribution room cannot be carried forward to the next year. 

It will also be possible to transfer funds from an RRSP to an FHSA, as long as contributions are within the annual and lifetime limits. 

When an account holder withdraws the money to buy a first home, they’ll have to close their FHSA and won’t be eligible to open another one. If they don’t buy a home within 15 years of opening their FHSA, the account must be closed, and the money will be taxable unless it is transferred to an RRSP (and this transfer won’t affect your RRSP contribution room).

How the FHSA will affect the Home Buyers’ Plan (HBP)

As per the government’s HBP, new homebuyers can use up to $35,000 from their RRSPs to go towards a down payment on a home, without paying tax on the withdrawal (although the whole amount must be repaid within 15 years). 

This plan will still be available to first-time homebuyers, but it will not be possible to withdraw from both your RRSP and your FHSA to buy a home. Only one account can be used. 

The First-Time Home Buyers’ Tax Credit

Up until this budget, first-time homebuyers could claim up to $5,000 used to buy a qualifying first home, as an expense (which would bring about a considerable tax refund). 

As of January 1, 2022, any qualifying first-time homebuyers can claim $10,000, which would double their tax refund. This could provide a useful amount that could go towards covering the costs of owning a home. 

Expert help for first-time homebuyers

An ACU Mortgage Specialist can help first-time homebuyers navigate the various obstacles of homebuying with a range of information and advice, including:

• Calculating exactly how much you could borrow on a mortgage. 
• Providing a price range of homes you could buy. 
• Affordability considerations.
• The documents you would need to qualify for a mortgage. 

ACU Mortgage Specialists go way beyond simply providing mortgage advice, however. They take a more personalized, holistic approach to mortgage planning. And by working alongside an ACU Investment Specialist, they can help you to maximize your savings and incorporate your homebuying into your overall financial plan. 

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Manitoba mortgage FAQs answered: Get ready for your mortgage application

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ACU specialists can help ensure that you consider a wide range of other aspects of homebuying, including:

• How to work out closing costs (including land transfer tax and legal/home inspection fees). 
• The most suitable percentage of down payment that’s right for you.
• Home ownership costs (including home insurance, utilities, property tax, repairs, etc.).
• Costs for furnishings, flooring, blinds, curtains, etc.
• Starting an emergency savings fund for large expenses, such as a new roof or furnace.
• Balancing mortgage payments with your long-term savings goals.
• Ways to reduce your reliance on borrowing.
• The most effective ways to invest so your savings grow faster. 

ACU Mortgage Specialists are also extremely flexible in how they meet with you. You can arrange an in-person appointment at your nearest ACU branch or you can opt for meetings by Zoom or telephone, whichever you’re most comfortable with. 

ACU Mortgage Specialists can help make your homebuying journey as smooth as possible. Start that journey today by calling us at 1.877.958.8588 or book an appointment here.

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