Before making an offer on your first home, you need to confirm your budget and save enough for a down payment—often around 20% of the purchase price. Canada’s housing market is costly, and putting down less than 20% typically requires mortgage default insurance, which can add significantly to your overall cost.
There are several ways to build a down payment, and one important option for first-time buyers is the first home savings account (FHSA). Introduced in April 2023, the FHSA is a registered account designed to help eligible first-time buyers in Canada save for a home. It works alongside other federal programs such as the Home Buyers’ Plan and the Home Buyers’ Tax Credit. The FHSA allows an annual contribution up to $8,000, with a lifetime limit of $40,000, and the account can remain open for up to 15 years. Contributions, income earned inside the account, and qualified withdrawals are tax-advantaged: investments grow tax-free and qualifying withdrawals are tax-free.
An FHSA accepts many of the same investments allowed in other registered accounts, so how you build its portfolio should match your timeline, goals, financial situation and risk tolerance. Those factors will evolve, so your investment strategy should too. Below is an overview of common FHSA-eligible investments and guidance on adjusting your holdings as you approach your home purchase.
What types of investments can an FHSA hold?
Like a TFSA or an RRSP, the FHSA gives you a range of investment choices. You can hold cash and earn interest, which is low-risk but may lag inflation, or you can choose investments intended to grow capital over time. Keep in mind that because the FHSA is a registered account, capital losses inside it cannot be claimed against gains outside the account. For personalized planning, consult a financial advisor.
- Stocks / equities: Stocks represent partial ownership in companies and are traded on stock exchanges. Some companies pay dividends, and all stocks are subject to price changes that can produce capital gains or losses.
- Mutual funds: Mutual funds pool investor money to hold diversified portfolios of securities such as stocks and bonds. They can generate interest, dividends and capital gains depending on their holdings and strategy.
- ETFs: Exchange-traded funds function like mutual funds but trade on stock exchanges. ETFs often provide low-cost exposure to broad market segments, sectors or asset classes.
- Bonds: Government and corporate bonds pay a fixed interest rate for a set term and return principal at maturity. Bonds are generally lower risk than stocks but are still subject to price fluctuations if sold before maturity.
- GICs: Guaranteed investment certificates offer a fixed rate over a defined term. GICs are predictable and useful when you need certainty about the amount available at the end of a term; you can also ladder GICs to stagger maturities for liquidity and reinvestment.
Adjusting your FHSA investments over time
You can review and change the asset mix in your FHSA as your situation changes, much like you would with an RRSP, RESP or TFSA. Your investment mix should reflect your timeline for buying a house and your personal tolerance for market volatility.
If you plan to buy within five years, a conservative approach—favoring bonds, GICs and conservative mutual funds or ETFs—reduces the risk that a market downturn will erode your down-payment savings. With a longer horizon, say seven to ten years or more, you might initially take on more equity exposure to seek higher long-term growth, then gradually shift to lower-risk assets as your purchase date approaches.
Diversification helps lower risk by spreading investments across different asset types. All-in-one or balanced ETFs can simplify diversification by combining equities and fixed income within a single product and varying allocations from conservative to equity-heavy strategies. Choose an allocation that keeps you comfortable: if market swings cause anxiety, a less aggressive mix may be a better fit.
Where and when to open an FHSA
FHSAs are available through many Canadian financial institutions. To open one, you must meet the eligibility rules for a first-time home buyer in Canada and be at least 18 years old but not older than 71. Because FHSA contribution room accumulates only after the account is opened, it makes sense to open an FHSA as early as you qualify—even if you’ll start with modest regular contributions. Talk with a financial advisor or your institution to understand account options and the investment choices you can hold inside the FHSA.
What happens if you don’t use your FHSA within 15 years?
Plans change and not everyone buys a home within the 15-year window. If you don’t use your FHSA for a qualifying home purchase within that period, or you use other funds for a down payment, you’ll need to decide how to handle the money in the account. You generally have two options:
- Withdraw the funds: Withdrawals that are not qualifying FHSA withdrawals are added to your taxable income in the year of withdrawal.
- Transfer the funds: You can transfer money from an FHSA to an RRSP or a registered retirement income fund (RRIF) without affecting contribution room in those accounts.
Because tax and financial consequences vary by individual, consult an advisor before you withdraw or transfer FHSA assets. Professional guidance can help you choose the most appropriate option for your circumstances.
More about real estate:
- How first-time home buyers can use an FHSA to save for a down payment
- Can a first-time home buyer have a mortgage co-signer?
- Can you use the FHSA and HBP together?
- Best FHSAs in Canada: Where to get the new first home savings account
This article is sponsored.
This paid post is informative and includes content approved by a client. It was written and edited by MoneySense contributors in collaboration with the sponsoring organization.
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