A house is no small purchase, especially if you live in the Greater Toronto Area or other markets where real estate can come at a premium. With that in mind, if you are thinking about buying a house soon, it’s a good idea to start taking stock of your personal finances. Along with any savings or investments you may have, this includes pension plans.
That said, in Canada, there are certain rules about which funds can and can’t be used to buy a house.
If you’re planning on withdrawing from your pension as a home buyer, there are a number of special considerations to be aware of before you head to the market.
This blog will offer high-level information about buying a home as a senior, and whether or not you can use your pension.
Hi, I’m Stu
A quick disclaimer before we jump into the details. I’m Stu, a senior real estate specialist based in Toronto. I know a lot about helping people (especially retirees, downsizers, and other folks in their golden years) buy and sell houses – but I’m not a professional accountant. For more detailed and personalized guidance on savings plans, government programs, and pension funds, I recommend working with your financial planner.
Preparing to buy your first home? Read these blogs for more advice!
- What’s The Average Age To Buy A House In Canada?
- Should I Rent or Buy a Starter Home in Toronto?
- What Does it Cost to Buy a House in Scarborough?
Using Your Pension to Buy a Home
Can you use your pension to buy a house? The short answer is yes, but there are a few caveats.
If you plan on using pension funds to buy a house in Ontario, your options will depend on what type of pension plan you have. More specifically, an RPP or an RRSP.
How to Use Your RRSP to Buy a House
Most Canadians have a registered retirement savings plan – aka an RRSP. You may have a personal RRSP, or one that you contribute to with your spouse or common-law partner. It’s important to note that RRSPs are registered with the Canada Revenue Agency (CRA). You may have a separate registered pension plan (RPP) with your employer, which is something else entirely.
On paper, RRSPs are designed to help you save for retirement. But that doesn’t mean that your money is completely locked up until you’ve left the workforce. Nine times out of ten, you can withdraw from your RRSP at any time, for any reason. However, certain financial penalties may apply depending on how you go about it.
Here’s the good news: In Canada, certain programs allow home buyers to tap into their RRSP savings while side-stepping some of those penalties.
Understanding the Home Buyer’s Plan
So you’d like to withdraw from your RRSP to buy a house, here’s what you need to know. As part of Canada’s Home Buyers’ Plan (HBP), you’re able to withdraw some money from your RRSP in order to buy or build a home. Once you take out these funds, you’ll have up to fifteen years to pay them back.
Sounds great, right? Before you get too excited, there are a number of rules for using your RRSP towards a down payment.
First and foremost, in order to qualify for the HBP, you need to be a first time home buyer, at least by the Federal Government’s standards. This doesn’t necessarily mean that you’ve never owned a home before, however, it does mean that you haven’t lived in a home that you (or your spouse) owned in the last four years.
You’re also required to physically live in the home within a year of buying it – i.e. you can’t use RRSP funds to buy a dedicated income property.
Searching for blogs related to downsizing? Explore these related blogs next!
- Condo vs. House – What’s Better For Seniors?
- What Seniors Need to Know About Downsizing for Retirement
- Can Downsizing Actually Save Me Money?
How Much RRSP Can I Use to Buy a House?
If you qualify for the Home Buyers’ Plan, you can take out up to $60,000 from your RRSP to use towards buying or building a house.
Financing Your Next Home
Using your RRSP to buy a home is a great start, but it won’t make up your entire budget. So, as you take steps to withdraw funds from your pension, you’ll need to analyze your other financial resources too. This includes income, any additional savings you may have, investments, and equity from your current home.
One of the easiest ways to find out what you can afford to spend on a house is to get pre-approved for a mortgage. During this process, a bank or lender takes a look at your overall financial situation and decides what they’re willing to lend you for a home purchase. With this number in your back pocket, you’ll have an easier time finding the right property for you.
Need to buy, sell, or both? I can help! Give me a call at 647.283.2127 or email stuart@stuartnodell.com to get in touch.
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