FHSA Hacks: How to Maximize your First Home Savings Faster

A first home savings account (FHSA) is a registered plan that can help Canadians save for their first home, tax-free. First-time buyers can make tax-deductible contributions to the account up to the annual limit, with a lifetime cap of $40,000. Funds grow in the account tax-free, and withdrawals for a home purchase are also tax-free.

While saving for a home may feel like a never-ending journey, FHSAs make the process easier. First-time homebuyers looking to boost their savings might consider the following strategies.

Choose strategic investments

Experienced investors—or quick learners—may be able to maximize their FHSA savings by identifying strategic investments. With a self-directed FHSA, account holders can control how their contributions grow. They’re free to pick investments and make the final call when it comes to selling or retaining assets.

A person’s goals and timeline may influence their investment decisions. For example, someone who plans to buy their first home within the next few years may want to choose risky investment options with higher potential returns, like certain stocks. On the other hand, someone who doesn’t plan on home buying for the next decade may stick to lower-risk investments with moderate, steady growth.

Keep in mind that only certain types of investments are permitted within an FHSA:

• Mutual funds
• Some shares of small business corporations
• Securities that appear on a designated stock exchange
• Guaranteed investment certificates
• Savings bonds
• Cash

Of course, account holders who don’t feel confident choosing their own investment strategy can opt for a traditional FHSA. In that case, the financial institution manages investments.

Use your participation room

An FHSA holder’s “participation room” refers to each annual contribution limit. The first year after a person opens their account, they can deposit up to $8,000. If they contribute less than $8,000, the remainder rolls into the next year’s participation room. However, they can carry forward a maximum of $8,000, which means they may lose some tax-free savings. Consider the following example:

Let’s say someone opens an FHSA in 2023 and deposits $3,000. Since the annual contribution limit is $8,000, they would have $5,000 left in unused participation room. This unused amount would roll into 2024, giving them a total participation room of $13,000 for that year ($8,000 new room + $5,000 carried over).

If they were to contribute only $3,000 again in 2024, they’d have $10,000 in unused room. However, only $8,000 of that can roll into 2025, as that’s the maximum allowed. They’d miss out on $2,000 of potential contributions.

In short, by not using the full participation room each year, account holders lose some of the tax-free savings they could have otherwise used.

Stick to a strict budget

A thoughtful budget can help FHSA holders make the most of their participation room each year. Everyone has unique priorities, responsibilities, and financial circumstances that should shape their budget. However, it’s typically a good idea to start by reviewing spending habits. This approach can help hopeful homebuyers identify opportunities to cut costs and redirect funds to the FHSA.

From there, the next step may be setting a regular savings goal, like 20% of each paycheck or $600 monthly. No matter the goal, consistency is key. Unless there’s an emergency or major change in income, FHSA holders should commit to the budget.

Work together 

Individuals planning to purchase their first home with a partner, friend, or family member should make sure all parties have an FHSA. Multiple first-time homebuyers who plan to buy the same property may be able to combine their savings to cover the same purchase, potentially doubling their savings.

The FHSA can be a powerful savings tool. By using FHSAs to their fullest potential, many Canadians can turn the dream of homeownership into reality.

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