Using an RRSP as a Down Payment

The Home Buyer’s Plan (HBP)

Finding the money for a down payment is often the only obstacle for Canadians looking to buy a house. This is because it requires a major financial contribution before the process of buying a home can begin. Because of this, there has been a change to withdrawal rules to Registered Retirement Savings Plans (RRSP).

Because of the financial obligation, the Canadian Government implemented the Home Buyers’ Plan. This allows qualified first-time buyers to take out up to $25,000 from their RRSP without penalty to be used as a down payment.

Having that money available in an RRSP can allow for the down payment on a new home to be paid, eliminating that serious obstacle holding Canadians back from making a home purchase.

There are qualifications to be aware of, however. To qualify for the Home Buyer’s Plan, the following conditions must apply:

Qualifications for RRSP/Home Buyer’s Plan

A maximum of $25,000 from your RRSP can be withdrawn. If married or purchasing with someone else, each party can take out $25,000 from their RRSP.
Only the person who owns the RRSP can make the withdrawal. If using multiple accounts, the total cannot exceed $25,000.
Can’t use funds from a locked-in retirement account.
Funds have to be in your account 90 days before the withdrawal.
Need a signed agreement proving intent. Provide a purchase contract from a builder or seller to show you are the buyer.
Must buy or build before October 1 of the following year after the withdrawal.
Property being purchased must be occupied by the owner unless you are buying from someone who is related to your or disabled. The new home has to be proven better to suit their needs than the current home.
Home Buyer’s Plan can’t be used to purchase an investment or rental property.
If you are disabled, you can participate in the plan to buy or build a more accessible home than the one you’re in.
Must begin to repay your RRSP two years after the withdrawal. You will then have 15 years to repay those funds with at least 1/15 of the funds being repaid each year. If you don’t, the amount will be considered taxable income.
Your retirement account can be established with borrowed funds. This can result in a large tax refund, which can be used as a down payment.
Can participate in the Home Buyer’s Plan more than once but only if your balance from the first withdrawal is repaid in full before re-applying.