In most Canadian markets, saving for a down payment is a challenge. In Toronto, it’s often the challenge!
One of the biggest hurdles for first-time buyers is assembling a meaningful down payment without draining every dollar of after‑tax income. That’s where the First Home Savings Account (FHSA) changes the equation.
This guide breaks down how the FHSA actually works, how buyers are using it in the real world, and where it fits alongside tools like the RRSP Home Buyers’ Plan.
What Is the First Home Savings Account (FHSA)?
At its core, the FHSA is a registered savings account designed specifically for first‑time homebuyers. What makes it unique is that it combines the best features of two familiar accounts:
- RRSP-like deductions when you contribute
- TFSA-like withdrawals when you buy
You get a tax deduction going in, and you don’t pay tax coming out — provided the funds are used to buy your first home.
That combination is what makes the FHSA one of the most powerful buyer-focused tools the federal government has ever introduced.
How FHSA Contribution Rules Actually Work
This is where most of the confusion starts.
- You can contribute up to $8,000 per year
- You can contribute up to $40,000 total over your lifetime
- You must be at least 18 and a first-time buyer to open one
One important nuance: contribution room only starts accumulating after you open the account. Unlike a TFSA, you don’t get retroactive room if you wait years to open it.
That’s why we often suggest opening an FHSA as soon as you’re eligible — even if you don’t plan to fund it immediately. You’re essentially starting the clock.
In a Toronto context, that early start matters. Few buyers are maxing this account overnight, but spreading contributions over time — and doing so with pre-tax dollars — meaningfully reduces the amount of cash that needs to be saved the hard way.
Who Qualifies as a First-Time Buyer (and Who Accidentally Doesn’t)
The definition of “first-time buyer” is more flexible — and more technical — than many people realize. And with the FHSA, when and how you qualify matters just as much as if you qualify.
You’re generally considered a first-time buyer if you did not own and live in a home as your principal residence in the current year or any of the previous four calendar years. This is often referred to as the four-year rule.
Here are the key nuances that tend to catch buyers off guard:
- Four-year rule: You may still qualify even if you owned a home earlier in your life, as long as you have not occupied a home you owned as your principal residence in the past four years.
- Timing matters: The eligibility test applies at the time you open the FHSA, not just when you later make a qualifying withdrawal. If you open an FHSA too early — before you re‑qualify — you may not be eligible at all.
- Spouses and common-law partners: If you have a spouse or common-law partner, the rules look at whether either of you lived in a home owned by either partner during the eligibility period. This can unintentionally disqualify renters who moved into a partner’s owned home.
- Partial ownership exceptions: In limited situations, acquiring less than a 10% interest in a property may not disqualify you. That said, the FHSA is generally designed to support buyers who have not meaningfully owned or lived in a home during the relevant timeframe.
The practical takeaway is this: if you’ve been renting for the past five years, you may still qualify as a first-time buyer for FHSA purposes — even if you owned a home earlier in your life.
Because these rules are precise and timing-sensitive, this is one area where getting advice before opening an FHSA can make a meaningful difference.
FHSA vs TFSA vs RRSP: Which One Comes First?
A common misconception is that the FHSA replaces other savings accounts. It doesn’t.
Each account serves a different role:
- FHSA: Purpose-built for a first home, combining tax deductions and tax-free withdrawals
- TFSA: Flexible, liquid, and ideal for shorter-term goals or emergency buffers
- RRSP: Long-term retirement planning, with optional access through the Home Buyers’ Plan
For higher-income buyers who are confident they’ll purchase within the next decade, the FHSA often rises to the top of the priority list. For lower-income buyers or those with uncertain timelines, flexibility may matter more.
There’s no universal order — only an order that fits your income, timeline, and risk tolerance.
FHSA vs TFSA: A Side-by-Side Comparison
| Feature | FHSA | TFSA |
|---|---|---|
| Primary purpose | Saving for a first home | Flexible savings for any goal |
| Contribution tax treatment | Contributions are tax-deductible | Contributions are not deductible |
| Withdrawal tax treatment | Qualifying home purchases are tax-free | All withdrawals are tax-free |
| Annual contribution limit | $8,000 | Set annually by the federal government |
| Lifetime contribution limit | $40,000 | No lifetime cap (annual limits accumulate) |
| Eligibility | First-time homebuyers only | Any Canadian resident 18+ |
| If you don’t buy | Can roll into RRSP or RRIF | Continues as a TFSA |
| Best used for | Down payment planning | Flexibility, emergencies, short-term goals |
FHSA + RRSP Home Buyers’ Plan: Where the Real Leverage Shows Up
The FHSA becomes especially powerful when paired with the RRSP Home Buyers’ Plan (HBP).
Under current rules:
- You can withdraw up to $40,000 from your FHSA tax-free
- You can withdraw up to $60,000 from your RRSP under the HBP (with repayment requirements)
That’s up to $100,000 per person, or $200,000 per couple, potentially sourced largely from pre-tax income.
In Toronto, where down payments are often the primary obstacle — not qualifying for the mortgage — this stacking approach can be the difference between waiting indefinitely and buying strategically.
FHSA Explained on Video: A Walkthrough for First-Time Buyers
If you prefer seeing this explained step by step, we also recorded a video walkthrough that breaks down the FHSA in practical, plain-English terms — including common mistakes and how buyers are actually using it.
This is especially helpful for:
- Buyers early in the planning stage
- Couples coordinating multiple accounts
- Anyone overwhelmed by CRA language
How FHSA Funds Can Be Invested
An FHSA is just a container. What you earn inside it depends on how the funds are invested.
Most institutions allow FHSA funds to be held in:
- Cash
- GICs
- ETFs
- Mutual funds
- Stocks
The right mix depends largely on timing. Buyers planning to purchase within a year or two often stay conservative. Those with longer horizons may accept more volatility in exchange for growth.
The key is aligning investment risk with purchase certainty — not chasing returns at the expense of flexibility.
What Happens If You Don’t Buy?
This is another area where the FHSA is often misunderstood.
If you don’t end up buying:
- You can keep the FHSA open for up to 15 years
- Any unused balance can be rolled into an RRSP or RRIF without triggering tax
In other words, the money doesn’t disappear. The account simply transitions from a home-buying tool into a retirement-planning tool.
That optionality is one of the FHSA’s most underrated features — especially for younger buyers whose plans may evolve.
It’s A Tool, Not a Shortcut
The FHSA doesn’t replace discipline, income, or patience. But for buyers who plan early — and use it intentionally — it can meaningfully lower the barrier to entry.
In a city like Toronto, where every dollar of after‑tax income matters, using the right accounts in the right order can shave years off the buying timeline. The challenge isn’t knowing that the FHSA exists — it’s knowing when to open it, how to fund it, and how it fits alongside RRSPs, TFSAs, and real market pricing.
If you’re a first‑time buyer trying to map out your next move — whether that’s buying this year or planning two to five years out — this is exactly the stage where a bit of upfront strategy pays off.
We’re always happy to walk through how the FHSA fits into your broader buying plan, and how it connects to what’s actually happening in Toronto’s market today.
