I often meet with young ambitious individuals who are wanting to put a plan in place to get their foot in the door of the real estate market. It is common for these clients who are just starting out to have minimal or no credit ratings and often they are still working on saving up that 5% down payment. For these people, I will sometimes advise that an RRSP loan may be a good solution to both of these problems. They can help build their credit rating and worthiness by making regular instalment payments on the loan, and at the same time they are building up a savings that can be used when they purchase their first home. It’s a win-win!
So, what exactly is the ‘Home Buyers’ Plan?
The CRA’s Home Buyers Plan (HBP) is a program that allows you as a first time home buyer to withdraw funds from your Registered Retirement Savings (RRSP’s) at the time of your purchase, tax free.
To qualify for this program there are a few rules and conditions that you as a home buyer must meet:
- You must be a resident of Canada at the time of withdrawal.
- You must intend to occupy the qualifying place of residency within 1 year year after buying or building.
- The funds must be put towards the purchase of your principal place of residence OR the purchase of a home for a related family member with a disability.
- The maximum withdrawal amount through this program is $25,000.
- The funds must have been in the RRSP account for a minimum of 90 days before redemption.
- You must not have owned any properties from January 1st of the 4th year before the year of withdrawal.
What’s the catch?
These funds to have to be repaid. You are given 15 years to repay the RRSP’s. Typically you’re required to replay 1/15th of the total redemption per year back in to the RRSP. If it is not paid, this portion will be included in your income for that year.
How do you apply?
You will need to request and complete the Form T1036 either from the institution that holds your RRSP’s or from the CRA website. This can only be done once you have entered into a written agreement to buy or build a qualifying home.
For more information please visit www.canada.gc.ca for forms and publications.