That in itself has become all too common.
A recent report from Zolo identified that 47% of Canadians received money from family members or an inheritance in 2022 to help cover the cost of their downpayment while more than half (55%) admitted some or all of their down payment came from family. The most recent figures from CIBC suggested first-time homebuyers are getting help from the bank of mom and dad 30% of the time and, in late 2021, that monetary family gift averaged $82,000.
"I would say very much so 50% of the time," said Trish MacKenzie, a Toronto-based real estate agent, regarding how often she has seen this type of gift play a factor in the sale of a home. "The bank of mom and dad definitely helps but many people really don't have that available to them."
So, what if that's you and you're not house hunting with thousands of dollars from your family in your back pocket?
Here's a look at some of the savings options and incentives available for first-time homebuyers in Canada and the opinion of an expert to help you in deciding which might be the best option for you.
Tax-Free Savings Account (TFSA)
A TFSA is a common way to save for a down payment on a house in Canada and any resident of Canada who is 18 years or older can open one.
The benefit of the account is in its name, given that the money put into or withdrawn from the account is tax-free. However, there are limits on how much money can be contributed to a TFSA each year.
In 2023, the TFSA contribution limit is $6,500.
So, while you can put away some money into your TFSA each year and plan to use it towards a down payment on a house, you'll likely want to look at some other savings options too.
Home Buyers' Plan (RRSPs)
Like a TFSA, you can also use your Registered Retirement Savings Plans (RRSPs) to help you save for and eventually buy a home through what is known as the Home Buyers' Plan (HBP).
But, there are also contribution limits and other rules to be aware of. In 2023, the RRSP contribution limit is 18% of your income from the previous year up to a maximum of $30,780.
MacKenzie spoke about some of the other rules that can be tricky to navigate when it comes to RRSPs.
"When you are planning to use it as a first-time buyer, it does need to be in there for a certain amount of time," she explained. "We ran into an issue where I threw a chunk of money in too close to our purchase and then we couldn't pull that portion of the money out."
Your RRSP funds have to be deposited for at least 90 days before you can withdraw them through the HBP, which allows you to take a loan of up to $35,000.
That loan has to be paid back within 15 years.
First Home Savings Account (FHSA)
This newest tax-free saving option was introduced by the federal government as part of its 2023 budget.
Just like a TFSA and RRSP, the First Home Savings Account (FHSA) allows Canadians under the age of 40 to save up to $8,000 annually up to a maximum of $40,000.
Any money left in this account once you turn 40 years old will convert back to RRSP savings.
The FHSA is a new option that several Canadian banks have only just started offering but some have tied the new account to some promotional offers that could help you save even more money.
According to MacKenzie, these three options for tax-free savings offer first-time home buyers, "A really interesting way of stacking up all of these tax-free savings accounts (...) which is which in itself gives you more money in your pocket."
If you're able to save enough money each year, you can strategically contribute the maximum amount to your TFSA, RRSP, and FHSA to maximize your tax-free savings and save for a home even faster.
First-Time Home Buyer Incentive
Another option from the Government of Canada can help to lower the mortgage payment and the down payment for a first-time homebuyer.
The First-Time Home Buyer Incentive offers three options:
- 5% or 10% of a first-time buyer’s purchase of a new home
- 5% of a first-time buyer’s purchase of an existing home (resale)
- 5% of a first-time buyer’s purchase of a new or resale mobile/manufactured home
The incentive has to be repaid in 25 years based on the market value of the home at the time of the repayment. The government will share in a loss or gain on the value of the property up to 8%.
"It's not my favourite thing," MacKenzie told Narcity. Her issue is the eligibility requirements for homebuyers to have an annual income of less than $120,000 or $150,000 in larger, more expensive cities like Toronto, Vancouver, and Victoria.
"A lot of people individually make less than that [but] when you put a couple together, and that's generally who is buying homes, their household income is more than that," MacKenzie continued. "So it's like the program is there but it's not really there."
MacKenzie told Narcity has never sold a home to a first-time home buyer who has taken advantage of the incentive. In her opinion, these incentive programs only work in smaller cities in Canada.
Investing & Saving
Aside from these incentives, programs, and tax-free savings options, there are plenty of other ways to save up for your first home that you may not have thought of.
"There's some really interesting ways I've seen people create equity for themselves that are not necessarily like, live at home until you're 35 or only do bank or mom and dad or rent forever," MacKenzie shared.
She said she's seen first-time homebuyers save faster by investing in a real estate property in another city while they rent to live in their current location.
She has also spoken to Narcity about the option of rent to own before, which she admits she is a big fan of.
Overall, MacKenzie advises making financial literacy, and in particular, speaking with a financial planner a priority if you want to start saving for a home so you can get familiar with all of your options and what works best for you.
"It's never too late to start," she said. "You don't need to be an expert in these programs (..) But having the right kind of team around you that is dedicated to helping you is really important."
This article's cover image was used for illustrative purposes only.
This interview has been condensed and edited for clarity.
