The Home Buyers’ Plan is a popular and affordable way for first-time homebuyers to purchase a home. The Home Buyers’ Plan (HBP) is a program that allows first-time homebuyers to withdraw up to $25,000 in a calendar year from their Registered Retirement Savings Plan (RRSP) for the purchase of a qualifying home. In case you don’t know where to start, you can get in touch with a real estate agency such as the New Era Group for guidance on the way forward.
The HBP is only available to residents of Canada. After one year, the amount withdrawn from your RRSP will be included in your taxable income for the year in which you take out the funds. The first $25,000 will generally not be subject to tax. The HBP can only be used against RRSP funds, and then only up to a maximum of $25,000 a year.
To Qualify for HBP
For first-time homebuyers only, the first $25,000 withdrawn from your RRSP will be exempt from tax. Your income will then be reduced by this amount. If your income remains low after this point, you may be eligible for a grant to help pay off the loan. The deduction is limited to a maximum of $25,000 per year that you file a tax return. The withdrawal will be included in your income for the year you withdraw it.
What are The Benefits of Using the Home Buyers’ Plan?
This is a great program, particularly for younger Canadians, as they’re able to use their own money for a down payment on their first home. By removing funds from your RRSP, you’re creating immediate savings on tax (as long as you don’t replace the money back into your RRSP). This is an important consideration, given that the Canada Revenue Agency currently allows you to contribute up to $25,000 per year in funds from your RRSP into an RRIF during any tax year without incurring a tax penalty. The Home Buyers’ Plan also allows you to withdraw up to $25,000 per calendar year, so there’s no worry about your contributions exceeding your expense deduction.
If you’re under age 55, you’re eligible to receive the full $25,000 per calendar year. If you’re between 55 and 65, the Home Buyers’ Plan provides you with a program that allows you to withdraw up to $20,000 in funds from your RRSP for any purpose. This means that older Canadians can benefit as well from the Home Buyers’ Plan.
In terms of funding for your project, the Home Buyers’ Plan is beneficial as it allows you to purchase land and then build on it later. There are no penalties on withdrawals from your RRSP – as long as your contribution reflects the number of funds being paid out to the vendor for the real estate property or land that you’re purchasing.
What to know as a First Time Homebuyer
Buying a home is difficult and time-consuming enough without being thrown into the deep end of the pool with little to no preparation. There are a myriad of reasons why homeownership is considered a “rite of passage.” Foremost among them, however, is that it allows you to build equity where others can only rent. For aspiring first-time homebuyers, there are a few things to consider when embarking on this adventure.
First of all, it’s important to establish your budget before beginning the process. While you may have plenty of money in your bank account now, you can easily run out of it during the course of a mortgage transaction.
A common misconception among first-time homebuyers is that they should wait until they save up for a larger down payment before entering into serious negotiations. However, putting off the purchase of a home for an extended period of time can lead to greater financial strain in the future.
The truth is that while a larger down payment may help you get a better rate and possibly avoid paying for private mortgage insurance (PMI), there are other options that first-time homebuyers should consider, and one of them is the Home Buyers’ Plan.
Buying a home is also synonymous with paperwork. As you’re working through the process of buying a home, it’s best to have all relevant documents ready to go. Two documents that first-time homebuyers should be sure to have at hand are a pre-approval letter and a 1099-INT form. The pre-approval letter will help you find the right lender for you and explain your financial situation readily. Additionally, it can help you find the lowest mortgage rates possible.