First Time Home Buyers and RRSP, How to Buy Your First Home With Your RRSPs (Canada Specific)

A person is considered a first time home buyer if he has not possessed a house in the last 5 years. Even if he had earlier owned a house, and there is a gap of 5 years, the person is categorized as a first time home buyer.

Registered Retirement Savings Plan or, RRSPs are a Canadian account which includes the savings as well as investments. The rules are controlled by the Canadian Income Tax Act, 1957. According to the RRSP plan, a certain amount of your taxable income is saved within the plan and in return, the government accordingly, decreases the amount of annual tax you need to pay. RRSP rules regulate the contributions, timely payments, obtaining the contributory tax credit, the numerous permissible assets and the transformation of RRSP to RRIP (Registered Retirement Income Fund). The government has approved the following list of assets.

Account for savings
GICs or, Guaranteed Investment certificates
Various bonds
Mortgages
Mutual funds
Company shares
Finances from labor
Revenue trusts
Overseas funds

According to the Canadian Federal Government, a first time home buyer may obtain money from his/her RRSP for home building/buying purpose. The HBP or, Home Buyers’ plan enables the person to make use of his RRSP money by paying it as a down payment to purchase/build a house. Hence, it saves him/her a lot of tension as well as extra out-of-pocket money.

You must be a Canadian citizen as well as a first time home buyer to avail the HBP. Generally, $25,000 to $50,000 is allowed to withdraw per couple if you are intending to pay it as a down payment for your primary residence. The money is available in RRSP within 90 days preceding the withdrawal. The withdrawal also requires a signed document describing the purpose of the purchase. You may buy it for some disabled relative and you have to establish the fact that the present establishment is better than their earlier dwellings. Purchase of investment as well as rental property is strictly prohibited as per HBP.

The person buying a home has to pay the amount loaned from his/her RRSP within a stipulated time of 15 years. With proper payments of at least 1/15th of the loaned amount per year the buyer is safe from penalties. The penalty here is the tax which is calculated on the difference amount if paid less than the aforesaid payments per year. A buyer can always use RRSP more than once if he/she returns the total loaned amount and again applies for another loan under HBP.

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