You can now combine cash from your FHSA and HBP to buy that first home. Here’s how ...

Though the government initially said you couldn’t combine them to make your first home purchase, the rules have changed for First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan (HBP) which can be used together for a first home purchase. And your partner (if applicable) can do the same, which is like doubling your efforts.

Both tools offer valuable tax-advantaged methods to save for a down payment and are easy to access when you’ve made your purchase and are ready to close the deal. With persistent high home prices, you’ll benefit from using both. Here are a few facts and tips to make the most out of both the FHSA and the HBP.

The differences — and advantages — of these plans

The biggest difference between the FHSA and the HBP is that the FHSA doesn’t require repayment of funds withdrawn, whereas the HBP requires you to repay your withdrawn funds.

With the FHSA, you can contribute up to $8,000 a year, for a lifetime contribution limit of $40,000 (so, it would take you five years to fully fund this account if you contributed the annual maximum). You get to deduct the contribution from your taxes, which helps to reduce the taxes you pay each year; as is also the case with RRSP contributions.

If your FHSA funds grow in value beyond these contribution limits — perhaps you’ve benefited from reinvested interest and returns — you can take it all out since there isn’t a maximum withdrawal limit like with an HBP.

When the time comes to purchase, your withdrawals are also tax-free, as long as the home qualifies — and you should check the nuances around what does and doesn’t qualify. For example, the property needs to be your primary residence within a year after buying or building it and it needs to be a home in Canada.

Should you not need the full amount of money from your FHSA (a rare occurrence) OR perhaps you decide to not buy at all (this is definitely a trend given how outpriced first time homebuyers are feeling) OR you decide to buy a home that doesn’t qualify, like a rental property, you can take the money out of your FHSA.

The withdrawal gets included as your income, and you’ll pay tax at your marginal tax rate on it. You can also transfer unused amounts into your RRSP or RIF on a tax-deferred basis. You won’t lose your money, you just lose the tax benefits that the FHSA offers.

The HBP is still very straightforward, and hasn’t changed much. You can withdraw $35,000 from your RRSP for your first home purchase in Canada. Your withdrawal is tax free, and it’s like taking a loan from your RRSP. You’ll have to pay the money back within 15 years. Otherwise, you’ll have to pay taxes on the withdrawn money. Contributions to your RRSP are deducted from your income, again helping you reduce your tax bill, which is why RRSPs are such a popular tool.

How to fund both your FHSA and RRSP (for the HBP) as quickly as possible

I always tell my community of super savers that if they want a down payment, they’re going to have to make saving for it a serious priority, and that means saying “no” to spending on anything that doesn’t contribute to this goal. Here are a few go-to money moves my students recite as being helpful in their down payment journey.

First, minimize. Sell off anything you don’t need. This is the part where you (and your partner) purge every room, including the garage, and sell electronics, snowmobiles, second cars, furniture, appliances and more. The goal is to raise a few thousand dollars to shove into your FHSA right away. Keep shopping for unnecessary items at an absolute minimum so you can use this money for your contributions.

Second, increase your RRSP contributions. This is especially powerful if you have a work RRSP that can be used for the HBP in the future. Simply increase your automated contributions from your pay so that the money doesn’t even hit your bank account to begin with.

Third, continue with regular savings. Don’t underestimate the power of steadily tucking away money for your down payment with every paycheque. If you’ve already got $35,000 saved in your RRSP for the HBP, allocate this regular savings into the FHSA as the priority. You can also split between both accounts if you have the available contribution room to do so. You should, however, check your CRA My Account portal to get a clear picture of your available contribution room for your RRSP so that you don’t accidentally overcontribute.

Fourth, if someone owes you money, call in the loan. If you’re behind on your invoicing, get those invoices out the door. If your business owes you money, make a plan to pay it out.

Fifth, ask your family for money. Giving while living is a massive trend now that the FHSA is out, and it makes so much sense in my mind to move money to the next generation when it’s most useful. Also, retired parents (or nearly retired) like assisting in funding the FHSA and HBPs, because it spaces out the money for them, too, over a few years, if that’s the timeline. Ask for a no-strings-attached gift, but if you need to pay it back, work out those details using a budget so that you can legitimately afford the repayment. And make a road map for the timeline until purchase, the target purchase prices and so on.

Sixth, make more money. Side-hustles, raises, promotions, bonuses, etc. All of this money can go straight into this down payment savings goal. And, if you’re terribly underpaid, now is the time to switch jobs. You’ll benefit from a higher salary, which will help you save, but also help you qualify for your mortgage with greater ease.

Seven, stop retirement savings temporarily. You can use this money toward the FHSA and HBP (again, if you haven’t gotten to that $35,000 yet). After you’ve taken possession of your property, resume saving for your retirement again; and you’ll probably have a bit of catch-up to do.

Both accounts allow you to invest the money how you see fit. But, caution! When home ownership is within your sights (five years or less), don’t expose this money to too much investment market risk. The timeline until you need the funds is far too short to make up for unforeseen losses from the market.

So much has changed with the housing market and with the introduction of the FHSA. Thus my top recommendation is to meet with your financial adviser to make a plan that makes sense for your situation.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.