The Most Important Federal Programs For First-Time Homebuyers

Feeling squeezed by interest rates and home prices? We’ve put together a list of government programs designed to help you buy your first home.

By Brennan Doherty | 5 minute read

Buying a home, even in today’s seemingly flat housing market, is far from easy for most Canadians. In spite of 2022’s moderation, homes across Canada are still more expensive than they were before the pandemic, especially in major cities like Toronto and Vancouver. Thanks to the pandemic-triggered remote work boom, other urban centres like Halifax, Calgary, and Hamilton are also seeing noticeable price growth.

Fortunately, the federal government does offer several housing programs designed to ease prospective buyers over the line from perma-renter to first-time homeowner. They aren’t always cheap, and some require significant savings, but in Canada’s constantly climbing real estate market, one of these programs might make a difference:

First Home Savings Account  

The flagship program of the Liberal government’s home affordability strategy, the First Home Savings Account — due to launch later in 2023 — is basically a mix of a TFSA and an RRSP, but only to save up for a downpayment on a home. Contributions to it can be deducted from your taxes (just like an RRSP) and the money in an FHSA is safe from the CRA (just like a TFSA). This program is for adults who haven’t lived in a home they own for the past four calendar years. Despite the name, it technically doesn’t have to be your first home.

The FHSA allows a prospective homebuyer to deposit up to $8,000 a year for a grand total of $40,000. You can carry over unused portions from previous years, so the money doesn’t have to flow in right away. But there are two downsides. If you pull the money out for anything but a downpayment, you’ll need to pay tax on it. The clock also starts ticking the moment you open an FHSA. If you don’t use the money within 15 years, you must close it and pay any penalties.

According to Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, the FHSA is better than both the RRSP and TFSA. “You get a deduction on the way in, and you have no tax on the way out,” he says.

But Ron Butler, a long-time mortgage broker in the Greater Toronto Area, describes the FHSA as merely an RRSP that can only be used on a house – and says an RRSP is actually better for first-time homebuyers. “You’re always going to favour the RRSP because it gives you a tax reduction,” he says. “This program does not. It just shelters some money from it. It just shelters the interest.”

Home Buyers’ Plan  

Think of the Home Buyers’ Plan as the precursor to the FHSA. Launched in 1992, it allows a first-time homebuyer to pull up to $35,000 from their RRSP to buy or  build a home for themselves or a related person with a disability. “You can think of it as sort of an interest-free loan from your RRSP,” explains David-Alexandre Brassard, chief economist at Chartered Professional Accountants of Canada. 

There are a couple of caveats. Any funds a homeowner wants to borrow must sit in the RRSP for at least 90 days before they can be used for the HBP. Doing so can also affect your ability to claim tax deductions for some or all of your contributions — the core perk of the RRSP. And like a loan, the HBP needs to be repaid. Any funds withdrawn from an RRSP for a home must be returned within 15 years. 

The HBP might be useful to would-be homeowners in calm Canadian markets, but buyers in Toronto — or other hot markets — might find this program isn’t sufficient. A couple can pull a combined $70,000 from their RRSPs through the HBP. “In Ontario,” Brassard explains, “it is generally not enough to reach that 20% threshold.” 

First-Time Home Buyer Incentive 

A shared-equity program, the First-Time Home Buyer Incentive involves the Canadian government paying up to 10% of a home’s purchase price as a down payment. According to the Canadian government, this program lowers a homeowner’s carrying costs and lets prospective homeowners qualify for a mortgage they might not otherwise be able to afford. 

Under this program, homeowners are required to pay back the amount they borrowed from the Canadian government in full after 25 years, or whenever the house is sold. There are some other qualifying conditions, too. The prospective homeowner cannot make more than $150,000 if they’re looking to buy in the Toronto, Vancouver, or Victoria area (or $120,000 elsewhere), and they cannot borrow more than four times their qualifying income. 

According to the government, a prospective homeowner must also meet the minimum down payment requirements on a home through either their savings, an RRSP, or money from a relative or immediate family member. “The Incentive is like a second mortgage on your home,” the Canadian government website explains.

The affordability question 

None of the federal housing programs for new homebuyers are a magic bullet for Canada’s ongoing affordability crisis. They may not even make a huge difference for most hardworking prospective buyers. The First Time Home Buyer Incentive, for instance, requires applicants to already have a minimum down payment available. Others, like the FHSA, require prospective homebuyers to save up tens of thousands of dollars for years and, in major markets like Toronto or Vancouver, still come up short.

Butler dismisses the tools above as “political theatre.” In his eyes, they simply don’t address the reasons why so many Canadians cannot afford a home. One of the biggest comes down to, simply, income: home prices eclipsed wage growth, sometimes by fivefold, for 12 years in a row. 

“You can’t recover from that if you’re in your early 30s,” Butler says. “How do you recover from a home in Ajax, or in Langley, British Columbia, doubling in the course of five years? How do you make that work?”

In Butler’s eyes, a homebuyer’s grant would be one way to sweeten the deal for first-time homebuyers who are simply priced out of most major markets. This would help them keep up with rising home prices, as well as the higher costs of homeownership due to interest rate hikes. But there is another, more straightforward solution to Canada’s housing woes. 

“If you want to really address affordability,” Brassard says, “build more.”