Buying your first home in Canada can feel like trying to hit a moving target. Prices rise faster than paycheques, the rules are hard to decipher, and well meaning advice often conflicts. It is a lot to carry, especially when you are already juggling work, family, and everyday life.
Fortunately, Canada gives first-time buyers more than one way to prepare. The First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan (HBP) can both play meaningful roles. The key is understanding how they work individually and how they can work together. Used intentionally, they can significantly reduce the after-tax cost of buying a home.
The FHSA blends two of the most powerful features in the Canadian tax system. Contributions are tax deductible, similar to an RRSP, and withdrawals used to buy a qualifying first home are completely tax free, similar to a TFSA. That combination is rare and incredibly valuable. To open an FHSA, you must be a Canadian resident, at least 18 years old, and considered a first-time home buyer, meaning you have not lived in a home you or your spouse owned in the current year or any of the previous four calendar years.
One important detail that often brings relief is that eligibility is determined when you open the account. If you qualify at that time, you can later make a qualifying withdrawal even if your circumstances change.
There are a few key contribution rules to understand:
- You can contribute up to $8,000 per year, to a lifetime maximum of $40,000.
- Contribution room only begins accumulating after the account is opened.
- Unused room can carry forward, but only after opening.
- Overcontributions are penalized at 1 percent per month.
If used as intended, FHSA withdrawals are entirely tax free and do not need to be repaid. If you never buy a home, the balance can be transferred into an RRSP or RRIF on a tax-deferred basis, even if you do not have available RRSP room. In that sense, it becomes additional retirement savings rather than a missed opportunity.
The RRSP Home Buyers’ Plan works differently. Instead of contributing to a new account, you withdraw from your existing RRSP. You can withdraw up to $60,000 to buy or build a qualifying home, and if purchasing with a partner, each of you may withdraw up to that amount. The withdrawal is not taxable at the time, but it must be repaid.
Repayment begins in the second year after withdrawal, and you have up to 15 years to repay the amount. Each year, one-fifteenth of the withdrawal becomes the minimum required repayment. If you do not repay the required portion in a given year, that amount is added to your taxable income.
This repayment requirement is the defining difference between the two programs. FHSA withdrawals never need to be repaid. HBP withdrawals are essentially an interest-free loan from your RRSP to yourself. You are accessing retirement savings earlier, with the expectation that you will restore them over time.
In many cases, buyers can use both programs together. A thoughtful approach often involves maximizing FHSA contributions first because of the tax-free withdrawal feature, using TFSA savings for flexibility, and then layering in the Home Buyers’ Plan if additional funds are needed. For some, it may also make sense to contribute to an RRSP, claim the deduction, and later withdraw under the HBP. In other cases, transferring funds from an RRSP into an FHSA (up to $8,000 per year) can shift money into a more powerful account that does not require repayment.
There are common pitfalls with both strategies. With the FHSA, people sometimes delay opening the account and permanently lose contribution room. With the HBP, buyers may underestimate how the required repayments will feel once they are managing a mortgage, property taxes, and new home expenses. Neither program is inherently better; each simply serves a different purpose.
What matters most is coordination. The FHSA rewards early action and long-term planning. The Home Buyers’ Plan provides access to larger sums if you have built RRSP savings. Used together and aligned with your broader financial picture, they can meaningfully reduce the after-tax cost of buying your first home while still protecting your long-term stability.
The rules are detailed, and it is normal to feel unsure at first. But when approached with intention rather than urgency, these tools can bring clarity and confidence to what is otherwise one of life’s biggest financial decisions.
