Are you a first-time home buyer wondering where you should start saving for your down payment? My first recommendation is usually a First Home Savings Account (FHSA).
You can save up to $8,000 per year. Your contributions can reduce your taxable income, and any investment growth inside the account is tax-free and you don’t have to pay the money back. What does that mean in layman‘s terms?
- On your tax return you get the tax you paid to your employer on that $8,000 back
- Because that $8,000 is invested, it will start to make money. Any money you earn, you do not have to pay taxes on
And here’s something not everyone realizes: you do not need to actually use the money towards your down payment! You can use it for moving costs, new furniture, you can even take a trip with it! You just have to take the money out within a month of closing your new house.
Fun fact – the money does not actually need to sit there a certain amount of time, so you can put it in on one day to get the tax credit and pull it out the next. I have even had people take $8,000 of their savings in December and put it into an account and then on January 1st put another $8,000 just to withdraw it for a closing on January 17th.
If you are a First Time Home Buyer and don’t have a ton of money saved or available to put in, open up the account anyways. You will start to build the $8,000 of room each year.