Money123 Article: Buying a House? Timing Your First Home Savings Account (FHSA) Withdrawal

A couple are about to buy a house in the next couple of months, but their money is in their First Home Savings Account (FHSA).

They are not sure when to withdraw their money.

They are worried that if they keep the money in the FHSA until they have a deal, it might cause a delay in getting the full downpayment and closing.

On the other hand, they don’t want to withdraw before they have a home, as they’re afraid the withdrawal may not count for the FHSA if they don’t close.

As a financial planner for Global News’ Money123 online email newsletter, I answer reader questions about investing, managing your finances, and planning for your future.

In the latest email to subscribers, I give this couple my advice on the best timing to withdraw from the FHSA, so they don’t incur any penalties.

By the way, my answer is at the bottom of the email newsletter.

Here’s a link to the Global News Money 123 email newsletter with what I recommend: https://globalnews.ca/newsletter/10690531/

The Question:

“I have a question about withdrawals from the first home savings account. My wife and I are in the market for a home and hope to buy in the next couple of months. I’m worried that keeping the money in the FHSA until we have a deal might cause a delay in getting the full downpayment and closing? But then I’m worried about withdrawing before we have a home and running into an issue where we end up waiting longer and the withdrawal not counting properly if we don’t close. Is there any wiggle room on when we can withdraw from the FHSA before knowing when we close on a home? What penalties would there be if we miss that window?”

— A Money123 reader 

Ed’s Answer:

“It is worthwhile for you to wait until you have a finalized agreement to buy your home before withdrawing from your FHSA. If you do not have a written agreement to buy, then the amount you withdraw is all taxable to you. The entire purpose of an FHSA is to get a tax refund when you contribute, but then withdraw tax-free to buy your home.

You should not have to worry about getting your withdrawal out on time. You only need to have your financial institution fill out the withdrawal form. Unless you have investments that are locked in, you should be able to do a qualifying withdrawal from your FHSA as quickly as a normal withdrawal from any registered account.

Possession date on a home purchase is usually a couple of months or more after you finalize the purchase, which gives you lots of time for your withdrawal. Your lawyer will want a minimum two to four weeks before possession for his legal work, which should be more than enough time for a withdrawal.

The rules are quite flexible in the timing of your withdrawal. The possession date can be any time up to Oct. 1 of the year after your withdrawal and you can withdraw up to 30 days after possession.

Make sure you are confident your home purchase should go through. If you withdraw from your FHSA and then the purchase falls through, you cannot reverse the withdrawal.

Once your agreement to buy your home is finalized and all conditions are waived, then you should be fine doing your withdrawal.”

Ed