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RRSP Home Buyer Plan For First Time Canadian Buyers Pros and Cons
The RRSP Home Buyer Plan (HBP) is a program available to first-time Canadian home buyers that allows them to withdraw up to $35,000 from their Registered Retirement Savings Plans (RRSPs) towards the purchase of a new home. This article will explore the pros and cons of utilizing the HBP to help young Canadians become homeowners. The HBP is a great way for first-time home buyers to get into the real estate market by using their Registered Retirement Savings Plans (RRSP). By withdrawing funds from an RRSP, a first-time home buyer can get a head start on saving for their new residence. In addition, there are no income tax repercussions for the cash withdrawn from the RRSP as long as the money is used for approved purposes. Under the HBP, first-time home buyers can withdraw up to $35,000 from their RRSPs to help with buying a new home.
How to qualify for the RRSP Home Buyer Plan
To be considered a first-time home buyer under the HBP, a person must have not owned an eligible property in the last five years. This includes properties such as a cottage or recreational property, and does not include an owner-occupied home or second home. The HBP also stipulates that the person must have been a resident of Canada for the last five years. The five-year period begins when the person turns 18. The HBP also requires that the person is not prohibited from qualifying as a first-time home buyer due to the existence of an interest in another property. If there is more than one person on title for the new property, all individuals must be first-time home buyers. Applications for the HBP are made online and an eligible applicant can receive a preliminary approval for up to $35,000. The applicant must then apply for a mortgage from a participating lender. If the application is approved, the applicant will receive a conditional approval letter. The applicant may withdraw the application at any time prior to closing the mortgage. The applicant must then submit required documents to CMHC and pay a non-refundable application fee of $75. Upon receipt of all required documentation, the HBP will issue a final approval letter. Check with me so that I can help you fill out the paperwork for the program, this will ensure there are no issues and the process is seamless.
You are considered a first time home buyer if you did not live in a home owned by yourself, your spouse, or a common law partner.
Can you qualify more than once as a first time home buyer?
Yes you can qualify more than once as a first time home buyer. If you sell your property and not own a property for over 4 years, you would qualify again for this program. The RRSP Home Buyer Plan is an excellent opportunity for Canadians to purchase their first home. It allows first-time buyers to use up to $35,000 of their Registered Retirement Savings Plan (RRSP) funds towards a down payment on a home. This program has been around since 1992 and, since then, has helped many people become homeowners. However, there are both pros and cons associated with this plan that need to be considered before taking part in it.
What documentation will need to be filled out?
Here is a link to the form t1036 Request to withdraws an RRSP from the government for the program, further to this your bank that holds the rrsp may require you to fill out some documentation. I will assist you with this free of charge!
What happens if you break up with your partner, can I qualify by myself?
You can still qualify for the program if you are single and own a home with a partner, however you will be required to repay the funds received from the government. Once this has been repaid your partner will be able to withdraw their funds as well. You will have to wait 90 days after the breakup to qualify for the program again.
How long does it take to get my money out of the RRSP for the home buyer plan?
The funds will be disbursed by the government to your RRSP within 30 days of your application being approved. How long do I have to repay the money?
Is the money interest free?
Yes the loan is an interest free loan for 15 years.
Do I have to repay the home buyer plan?
Yes you do, there are two options for repaying the funds. You can either repay the full amount within 15 years, or you can choose to repay the loan over a longer period of time at a lower interest rate.
Can 2 first time home buyers use this program on the same property?
Yes, 2 parties to a transaction can both use this program. Each person would be allowed to withdraw up to $35, 000 out of their RRSP for a combined total downpayment of $70, 000!
RRSP Home Buyer Plan Pros
- Interest free loan for 15 years
- You can qualify a second time if you do not own and live in a property for 4 years
- You can withdraw up to $35, 000 for a downpayment loan
- The loan is not debt serviced as a loan on a mortgage application
- You can use it again if you pay it back for a different property.
RRSP Home Buyer Plan Cons
- You have to pay it back, it is not a grant.
- Accurate paperwork is necessary and I have seen many people have an issue with the paperwork.
- It takes some time to get the money out.
- You must be a resident of Canada when you withdraw funds
Summary of the RRSP Home Buyer Plan for most people
- The government allows you to withdraw up to $35,000 out of your RRSP with no penalty for a downpayment
- You must either be a first time home buyer, or have not used the program for 4 years
- This is a loan and must be re-payed after 15 years
- There is no interest on this loan
Other weird Rules you should know about
- RRSP funds must be in your account 90 days prior to withdrawal
- If you are buying with a partner who is not a first time home buyer, you cannot have lived in the house they owned for 4 years
- The property must be your primary residence
- Repayment of te loan will start 2 years after the purchase
- Work based RRSP contributions do count towards repayment!
Related Questions I found people asking online
Can you use an RRSP for first time home buyer?
Yes you absolutely can use your RRSP as a first time home buyer. The RRSP home buyer plan is designed to use the RRSP for a downpayment up to $35,000 in a repayable RRSP loan for a 15 year term.
What is the RRSP first time home buyer plan limit?
The limit to the RRSP home buyer plan is $35, 000 per person.
What are the disadvantages of the RRSP home buyer plan?
The RRSP Home Buyer plan is not a perfect solution for everyone. Here are some of the disadvantages:
1. You have to pay back the money you borrow from your RRSP account within 15 years, and if you don’t it can mean extra taxes. That’s like having to pay back an IOU or promise that you made with your parents – if you don’t do it, there could be consequences!
2.The disadvantages are repayment starting at the 2 year mark, and that the money must be repaid at the 15 year mark.
Can you use your RRSP for a downpayment on an investment property?
No, you cannot use the RRSP home buyer plan as a downpayment on an investment property. This program is for primary residence only. You can use the money from the rrsp for a downpayment without using the home buyer plan, however that money would be taxable at this years income level. Call me with any questions you have about this.
Who runs the RRSP home buyers plan?
The RRSP Home Buyers Plan is a program that helps people buy their first home. It’s like having your own savings account to help you purchase a house. The government runs the program, and it allows you to borrow money from your Registered Retirement Savings Plan (RRSP) without paying taxes on it.
Please call me if you have any questions 780-278-4847
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