Planning A Down Payment For Your First Home
It takes a lot of planning when you are putting together funds for a down payment for your first home. From receiving monetary gifts from parents, saving a few hundred dollars every month to leveraging saving plans dedicated to saving for housing often takes a solid strategy. Fortunately, we have access to a range of saving accounts that are designed to help First Time Home Buyers.
Unlike a regular savings account, there are special savings accounts with benefits which are more advantageous when saving for a down payment. These special savings accounts yield higher rates of interest to keep pace with the increase in annual house prices. There are many popular options that are used to save a down payment for a home, and we will discuss the most beneficial ones, as per professional South Surrey realtors.
Top Ways to Plan a Down Payment for Your First Home
Gifted Down Payments
As the name suggests a gifted down payment is a monetary gift from a parent, grandparent, or sibling. This is not exactly a loan as there is no requirement to repay this. These gifts are usually given with zero expectation of getting the money back and there is a legal requirement to sign an agreement explaining the same. This is different from Co-signing as they are not assuming the risk and it doesn’t impact their ability to borrow. The gifted amount towards a down payment can help you buy something that you would not have had otherwise. There is no tax and no limit on how much could be gifted if the transaction is in compliance with FINTRAC (Canada’s Financial Transactions and Report Analysis Centre). You will need a mortgage gift letter and the funds should be deposited in your account before you could use these funds towards a down payment. These are the most common and widely used methods among new millennials and family members.
First Home Savings Account (FHSA)
FHSA was recently introduced in the month of April 2023. This account is a registered plan that allows you to save money to buy or build a qualifying first home tax-free. Just like the RRSP, contributions to FHSA are tax-deductible on your income tax return. The annual contribution limit is $8,000 and the lifetime contribution limit is $40,000.
Registered Retired Savings Plan (RRSP
It’s a retirement plan registered with the federal government. Your contributions towards RRST are exempt from Tax, all capital gains are also tax-exempt as long as you keep the money in this savings plan. Your contribution to RRSP reduces your net taxable income and offers a tax break. These tax breaks help you save for your retirement however, they also allow you to withdraw the contributions one time to put down payment towards your first home. These withdrawals are to be paid back within a 15-year period to avoid any tax liability. There is an annual limit for contributions towards your RRSP account.
Tax-Free Savings Account (TFSA)
A TFSA is basically a tax-sheltered account that allows your contributions and savings to grow tax-free. There is a limit on how much you can contribute on an annual basis i.e. $6000. The withdrawal from this account is also tax-exempt. A popular way to further invest your TFSA is in a balanced stocks portfolio, Guaranteed Investment Certificates, or mutual funds. Just contributing to these accounts is not an optimum utilization. You need to further invest it to reap full benefits.
Entering the South Surrey real estate market offers several advantages, such as ensuring stable housing, creating an investment avenue for personal finances, and fostering social connections. Assisting close relatives with a down payment, if feasible, presents an excellent opportunity for them to embark on their homeownership path.
It’s important to note that the content presented in this article is intended for informational purposes and should not be construed as professional financial or legal guidance.
At SoldbySukhraj we are your trusted South Surrey realtors with a lot of experience, reputation, and credibility in the market. You should take advantage of our flat fee model which saves thousands of dollars. We are just a phone call away and I can meet at your home and provide customized suggestions based on your unique property.
Feel free to book a session with me by calling 604-404-1100 or reaching out via social media.