Becoming a homeowner is a major milestone many young adults hope to reach, yet it can feel out of reach. A recent study found that 43% of Canadians plan to buy a home within five years, but nearly one quarter of those hopeful buyers have not started saving for a down payment. That includes many from Generation Z, who face challenges like rising interest rates and inflation. Still, new tools can help. The first home savings account (FHSA), a tax-advantaged account introduced to help first-time buyers, offers a practical way to build toward home ownership.
How the FHSA works
The FHSA is a registered savings account designed specifically for first-time home buyers. It combines features from both RRSPs and TFSAs: contributions are tax-deductible, like an RRSP, while withdrawals for an eligible home purchase are tax-free, like a TFSA. You can contribute up to $8,000 per year with a lifetime maximum of $40,000. Contribution room begins to accrue once you open the account, and unused contribution room can be carried forward to following years, allowing you to contribute up to $16,000 in a single year if you have carried-forward room.
Who is eligible for an FHSA?
To open and use an FHSA you must be a Canadian resident who is at least 18 years old and qualify as a first-time home buyer. That means you cannot have owned and lived in a home that you or your spouse or common-law partner owned in the previous four calendar years.
Key rules to remember
Before you open an FHSA, keep these rules in mind:
- If you withdraw funds from the FHSA, you must complete a qualifying home purchase by October 1 of the following calendar year, or the withdrawn amount will be taxed as income.
- The purchased home must be located in Canada.
- You must close the FHSA after 15 years or at the end of the year you turn 71, whichever comes first.
- If you don’t use the funds to buy a home, you can transfer the FHSA balance to your RRSP on a tax-deferred basis.
- Unlike the Home Buyers’ Plan (HBP), money withdrawn from an FHSA for an eligible purchase does not need to be repaid.
Build an FHSA savings plan
Start by identifying your target location and property type, since prices vary widely by region and by housing type. For example, national average home prices and major city averages can differ significantly. Once you have a target price, determine how much down payment you want to save. Homes priced under $1 million usually require a 5% to 20% down payment depending on the value, while homes $1 million and up generally require at least 20% down.
Here’s a sample savings plan showing how to break down a $120,000 down payment for a $600,000 property:
| Location of future home | Ottawa, Ont. |
| Desired property type | Townhome |
| Target home price | $600,000 |
| Down payment goal (%) | 20% |
| Down payment amount ($) | $120,000 |
| Number of years to save | 12 years |
| Annual savings required | $10,000 |
| Monthly savings required | $833.33 |
| Weekly savings required | $192.31 |
Because the FHSA lifetime contribution limit is $40,000, you will likely need to combine it with other accounts to reach a typical down payment. For example, you can use the Home Buyers’ Plan (HBP) to withdraw up to $35,000 from an RRSP (or up to $70,000 for a couple). The remaining balance could come from a TFSA or other savings.
| Type of account | Total amount to save | Percentage of total savings | Weekly contributions |
|---|---|---|---|
| FHSA | $40,000 | 33.33% | $64.09 |
| RRSP (HBP) | $35,000 | 29.17% | $56.10 |
| TFSA | $45,000 | 37.50% | $72.12 |
| Total | $120,000 | 100% | $192.31 |
These figures assume a single buyer and do not include potential investment growth or losses from holding stocks, bonds, GICs or other investments. Investment returns can accelerate reaching your goal, while losses could require adjusting your timeline or savings plan. Buying with a partner or benefitting from market growth could shorten the time required to save.
Ways to fund your FHSA
Beyond setting aside a fixed amount from each paycheck, consider channeling additional income into your FHSA to reach your target faster. Typical sources include:
- Tax refunds
- Bonuses, tips or commissions
- Monetary gifts from family or friends
- Income from part-time work or side hustles
What investments can you hold in an FHSA?
FHSAs can generally hold the same kinds of investments allowed in TFSAs: stocks, corporate and government bonds, guaranteed investment certificates (GICs), mutual funds and similar securities. The right mix depends on your time horizon and risk tolerance.
Longer time horizon (moderate risk)
If you’re in your early 20s and plan to buy in a decade, a balanced approach that includes index funds and bonds may offer reasonable long-term returns while smoothing out market volatility.
Shorter time horizon (low risk)
If you’ll buy within five years and prefer low risk, GICs or high-interest savings options can protect your principal while offering modest returns that outpace inflation. Current GIC rates may be attractive compared with holding cash, which can lose purchasing power over time.
Strategies to optimize your FHSA
There are several sensible ways to use the FHSA depending on your circumstances:
1. Contribute even if your plans are uncertain
If you’re unsure whether you’ll use the funds to buy a home, contributing to an FHSA can still be valuable. If you later decide not to purchase, you can transfer the balance to your RRSP on a tax-deferred basis. That effectively creates additional RRSP contribution room without exceeding annual RRSP limits when you transfer.
2. Start early to benefit from compounding
Contributing as early and as much as you can increases the potential for compound growth and makes reaching your savings goal easier over time.
3. Consider your income and tax position
If you have higher income, the FHSA’s tax deduction can provide immediate tax savings you can reinvest. If your income is lower and tax deductions aren’t as beneficial, contributing to a TFSA might be a better short-term option, particularly if you might need the money for other priorities.
4. Use all accounts available
Combine tools—FHSA, RRSP (via the HBP), and TFSA—to maximize total savings. For many buyers, using all three accounts is the most realistic way to build a significant down payment.
Build a foundation for home ownership
The FHSA is a useful addition to the suite of savings tools for first-time home buyers. Paired with careful budgeting, disciplined savings and strategic use of other registered accounts, it can help you move toward purchasing a home. For many buyers—especially those aiming to purchase in high-cost urban areas—FHSAs alone won’t cover the full down payment, but they do provide valuable tax advantages and structure to accelerate savings.