Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Tips for Buying a House for those with Poor Credit

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Image Pixabay

By Brittany Cotton

Special to Financial Independence Hub

For people with bad credit, the experience of buying a home can be quite difficult and daunting. It’s a tricky time that necessitates careful planning and preparation.

However, despite the difficulties that low credit scores may present, there are several tips and strategies you can employ to help you navigate the home-buying process. This article highlights some of these innovative strategies.

How to Buy a Home with Less than Stellar Credit

Here are some pointers to help you buy a home even if you have bad credit:

Consider Special Programs

There are numerous loan programs that do not require a high credit score or a down payment if you are a first-time homebuyer or have a low income. Some options [in the United States] to consider include USDA loans, VA loans, and the Fannie Mae HomeReady and Freddie Mac HomeOne and Home Possible loan programs.

Look for the Best Deal

Different mortgage brokers offer various rates of interest, so shop around to find the best deal. According to studies, trying to compare multiple rate quotes could save you a substantial amount of money in the long run.

Look into Down Payment Assistance

If you’re concerned about saving for a down payment, there are more than 2,500 down payment support programs available across the country for which you could be eligible. However, you need to avoid major financial changes. Taking on new debt or making a large purchase can lower your credit score, so avoid doing so while applying for a mortgage.

Things you should know about the Homebuying Process

Before you start looking for a house, you should educate yourself on the ins and outs of house purchases. Here’s a rundown of some key points to keep in mind:

Recognize why you want to Buy a House

Buying a house is a significant investment that shouldn’t be taken lightly. If you don’t know why you would like to buy a house, you may come to regret your decision later on.

Check your Credit Score

Your credit score will help you in evaluating your payment plans; lenders use it to set loan pricing and determine if you can repay your mortgage. The more favorable your credit history, the better your chances of obtaining financing at the best terms and rates. Continue Reading…

New tax-free Questrade FHSA helps Canadians save, invest & realize their dream of homeownership

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Image courtesy Questrade/iStock

By Rob Shields, Questrade 

Special to Financial Independence Hub

On April 1, 2023, Questrade became the first in Canada to offer the new First Home Savings Account (FHSA). For us, this was a major accomplishment in our continued mission to help Canadians on their journey to financial independence. Our goal has always been to challenge the status quo, transforming financial, investing and mortgage services for the good of Canadians. Knowing the Government of Canada was introducing the new FHSA on April 1, the team at Questrade began planning months ago. Our goal was to offer Canadians this account on day one, so they can start saving, investing and growing their money for their first home. Mission accomplished.

Save for a home faster

Saving for a home is a big challenge for many Canadians. With housing prices as they are — especially in major cities — maximizing your down payment is critical. By opening an FHSA account at Questrade, Canadians can invest up to $8,000 annually, deduct their investment contributions from their taxable income and give it the opportunity to grow in the market. They can contribute up to $40,000 in this account, with no limits to how much it can grow, making it a powerful savings tool. Ultimately, they can withdraw it tax-free to use it for a home purchase: with no requirement to repay. The only requirements to open an FHSA are: being a verified resident of Canada, being at least 18 years of age, and being a first-time home buyer.

Imagine a scenario where you open an FHSA account with a goal to buy a house in 10 years. If you maximize your annual contribution limit of $8,000 per year for the first 5 years, you’ll reach the lifetime contribution limit of $40,000 in 5 years. If you invest your account with a Questwealth Aggressive Growth Portfolio, which had an average return of 7.18% per year, your account could grow to $69,993 after 10 years*. That’s $69,993 you can withdraw tax-free to put towards your home, with $29,993 coming just from investment gains. Continue Reading…

Giving with a Warm Hand: through the new FHSA

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Image via Pixels: Rahul Pandit

By Michael J. Wiener

Special to Financial Independence Hub

I expect to be leaving an inheritance to my sons, and I’d rather give them some of it while I’m alive instead of waiting until after both my wife and I have passed away.  As the expression goes, I’d like to give some of the money with a warm hand instead of a cold one.

I have no intention of sacrificing my own retirement happiness by giving away too much, but the roaring bull market since I retired in mid-2017 has made some giving possible.  Back then I thought stock prices were somewhat elevated, and I included a market decline in my investment projections to protect against adverse sequence-of-returns risk.

Happily for me, a large market decline never happened.  In fact, the markets kept roaring for the most part.  As it turned out, I could have retired a few years earlier.  A large market decline in the near future is still one of several possibilities, but the gap between our spending and the money available is now large enough that we are quite safe.

Our lifestyle has ramped up a little over time, but not nearly as much as the stock market has risen.  We just aren’t interested in expensive toys.  Owning a second house or a third car just seems like extra work.  Our idea of fun travel is to go somewhere with nice hiking trails.

So, we have the capacity to help our sons with money, but there is another consideration: what is best for them?  I’m no expert in the negative effects of giving large sums of money to young people, but I’m thinking it makes sense to ease into giving.

Ease into giving with the FHSA

This is where the new First Home Savings Account (FHSA) is convenient for us.  Our plan is to have our sons open FHSAs, and we’ll contribute the maximum over the next 5 years.  This will give them an extra tax refund each year, and if they choose to buy a house at some point, they can use the FHSA assets tax-free as part of their down payment.  If they don’t buy a house, they can just shift the FHSA contents into their RRSPs without using up any RRSP room. Continue Reading…

More on the FHSA [Tax-free First Home Savings Account]

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The FHSA and reasons why younger Canadians should really opt in to opening this account with any intention to buy their first home over time …

By Mark Seed, myownadvisor
Special to Financial Independence Hub

The New Tax-Free First Home Savings Account (FHSA) Facts:

  • Think of the FHSA as a hybrid of the Registered Retirement Savings Plan (RRSP) / Home Buyers’ Plan and Tax-Free Savings Account (TFSA): FHSA contributions are tax-deductible like the RRSP and qualifying withdrawals out of the account are not taxed just like the TFSA.
  • To be eligible to open and contribute to your FHSA you must be:
    • A Canadian resident + 18 years or older + *a first-time home buyer. (Meaning, existing homeowners AND folks that owned a home in the *last four preceding years of trying to open the FHSA won’t qualify to open this account).

*An individual is considered to be a first-time home buyer if at any time in the part of the calendar year before the account is opened or at any time in the preceding four years they did not live in a qualifying home (or what would be a qualifying home if located in Canada) that either (i) they owned or (ii) their spouse or common-law partner owned (if they have a spouse or common-law partner at the time the account is opened).

  • The FHSA can hold stocks and bonds and ETFs just like the TFSA and RRSP.

FHSA Contributions and Tax Deductions:

  1. Individuals would be able to claim an income tax deduction for FHSA contributions made in a particular taxation year; contributions currently capped at $8,000 per year up to a $40,000 lifetime contribution limit. So, a solid 5-years of striving to max-out the account for tax-free withdrawals.
  2. Like the TFSA, your unused FHSA contribution room can be carried forward to the following year but only up to a maximum of $8,000.

FHSA Holding Period and Withdrawals:

The account can stay open for 15 years OR until the end of the year you turn 71 (not very likely???) OR until the end of the year following the year in which you make a qualifying withdrawal from an FHSA for the first home purchase, whichever comes first.

FHSA worst-case? What if you open an account and you don’t purchase a home??

Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis, subject to applicable rules. Of course, funds transferred to an RRSP or RRIF will be taxed upon withdrawal.

All that and more, is highlighted in this comparison graphic below via @AaronHectorCFP and more details from Cut The Crap Investing with even more Q&A.

Weekend Reading - The New Tax-Free First Home Savings Account (FHSA)

Reference/Source: https://cutthecrapinvesting.com/2023/03/01/the-tax-free-first-home-savings-account-in-canada-fhsa/

My FHSA Thesis

Overall, pretty great stuff with the FHSA and a major opportunity for younger investors who are really trying to find ways to sock away more money for their very first home.

Continue Reading…

The tax-free First Home Savings Account

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

The first home savings account goes live on April 1, 2023. [It was confirmed in Tuesday’s 2023 federal budget.] The FHSA is a program to help first time home buyers save for a home, in tax-free fashion. The program can be used on top of the current Home Buyers Plan (HBP) that is part of the RRSP savings vehicle. We can also throw in the Tax Free Savings Account (TFSA) for ways that Canadians can save in tax-free or tax-deferred fashion. The first home savings plan is a wonderful addition to the Canadian saving and investing landscape.

Here’s the government of Canada link for the first home savings plan.

And here is a simple overview from TD Bank.

And special thanks to financial planner Mark McGrath for his tweets and help. Mark is a Wealth Advisor at Wellington-Altus Private Wealth.

Be sure to follow Mark on Twitter. He often provides wonderful insights on financial planning basics, and is always happy to answer questions.

What is the first home savings account?

The First Home Savings Account is a type of registered savings plan for Canadians saving to buy their first home. Canadian residents aged 18 years or older can open an FHSA to save towards the purchase of a home in Canada.

There are limits to how much you can put in your FHSA:

  • $8,000 – yearly contribution limit
  • $40,000 – lifetime contribution limit

Contribution amounts are tax deductible, just like the RRSP program. They will reduce the amount of income taxes that you will pay. The annual contribution limit would apply to contributions made within a particular calendar year. Unlike RRSPs, contributions made within the first 60 days of a given calendar year can not be attributed to the previous tax year.

Contribution room carries forward to the next year if you don’t put in the full amount. Carry-forward amounts only start accumulating after you open an FHSA for the first time. The carry-forward room does not automatically start when you turn 18.

An individual would be allowed to carry forward unused portions of their annual contribution limit up to a maximum of $8,000. For example, an individual contributing $5,000 to an FHSA in 2023 would be allowed to contribute $11,000 in 2024 (i.e., $8,000 plus the remaining $3,000 from 2023).

Who can open a first home savings account?

To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, an individual must be a first-time home buyer, meaning you cannot have lived in a home that you or a spouse/common-law partner owned in the current year or the previous 4 calendar years. And you can only use the FHSA once.

Combine FHSA with the RRSP home buyer’s plan

As you may know you can remove up to $35,000 from an RRSP account to be used for a first time home purchase. It’s called the Home Buyer’s Plan (HBP). You can use monies from both the HBP and the FHSA for that first home purchase. You can combine amounts.

There is no limit to how much you can use from your first home savings plan. Meaning, for your first home purchase.

What can you hold in an FHSA?

An FHSA can hold savings or investments. The same qualified investments that are allowed to be held in a TFSA can also be held in an FHSA. This could include ETFs, stocks, mutual funds, bonds, savings accounts and GICs.

What if you don’t use the FHSA funds for a home purchase?

Any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or Registered Retirement Income Fund (RRIF) or would otherwise have to be withdrawn on a taxable basis. Individuals that make a qualifying withdrawal could transfer any unwithdrawn savings on a tax-free basis to an RRSP or RRIF until December 31 of the year following the year of their first qualifying withdrawal.

Withdrawals that are not qualifying withdrawals would be included in the income of the individual making the withdrawal. Financial institutions would be required to collect and remit withholding tax on non-qualifying withdrawals, consistent with the treatment applicable to taxable RRSP withdrawals.

Transferring your FHSA to your RRSP or RRIF

Your FHSA must be closed by December 31st on the soonest of:

a) the 15th year after you open it

b) the year you turn 71

c) the year following the year of your qualified home purchase The balance can be taken as taxable cash or rolled over, tax-deferred, to your RRSP. Continue Reading…