The HBP – your ally when purchasing your first property
The down payment required to purchase your first property is often a daunting financial headache. But did you know that the Home Buyers' Plan (HBP) can be a feasible solution to obtain the required capital? If you meet the requirements of this program, your dream of becoming a homeowner could materialize more easily than you thought. In this article, we will review the main advantages and what is required to qualify for this plan.
What exactly is the HPB?
The HBP is a program that allows you to withdraw money from your Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home for yourself or a related person with a disability.¹
What is a "qualifying home"? A "qualifying home" is an existing property or one under construction. Single-family, semi-detached, townhouse or mobile homes, condominiums and apartments located in a duplex, triplex or fourplex all qualify.
Conditions that facilitate the purchase of a first property
To qualify for this program, you must be a Canadian resident and demonstrate that you are in the process of purchasing your first property. You must also clearly demonstrate your intention to occupy the qualifying home within one year of the purchase or construction of your property. In addition, if you or your life partner did not own a main residence in the year of the RRSP withdrawal and the four previous calendar years, you may be eligible for the program.
The limit for withdrawing money from your RRSPs is $35,000 per person. So, if you are a couple, you could raise a total of $70,000 for your down payment. That's a lot of money! To do this, you and your spouse must be the owners of each respective RRSP accounts. Note that even if your RRSPs are spread over several financial institutions, you can make withdrawals as you see fit as long as you do not exceed the required $35,000 limit.
The issuer of the RRSPs will not immediately withhold tax on the amounts withdrawn. Two years after the purchase of your property, you will be able to start repaying the funds over a 15-year period at a ratio of 1/15 of the amount withdrawn. This ratio is applied each year and for each person involved.
If you have already participated in this plan, it is possible to take advantage of it again. As long as your HBP balance, which is repayable on January 1 of the year of withdrawal, is zero and you meet all the eligibility conditions listed above, you may be eligible again.
If you want to buy your first home soon and don't have the required minimum down payment, the Home Buyers' Plan could come to your rescue... And make your dream come true!
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