Can I use my RRSP to buy a home?

  

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First-time homebuyers who are Canadian residents can withdraw up to $25,000 from their RRSP TAX FREE. Through Canada’s Home Buyers Plan (HBP) you and your spouse can each withdraw up to $25,000 (as of the 2009 federal budget) to build or buy a qualifying home.

Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.

Keep in mind there are a few rules:

• To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build the home before October 1st after the year of withdrawal. This is IMPORTANT if you are considering RENT-to-OWN as your window to get your mortgage approved is between 12 months (if you enter a RTO transaction late in a year) and 19 months (if you enter a transaction early in a year).
• You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or the CRA will add 1/15th to your taxable income for the year.
• RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.  You can still remove all your RRSP funds but the last 90 days worth of contributions will be taxable in the year of contribution.

This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website.