How to Withdraw from Your FHSA for a Down Payment
Tim Lyon • July 14, 2025
The First Home Savings Account (FHSA) is a fantastic way to save for your down payment tax free. It’s easy enough to open one but where most people have questions is when it comes to the withdrawal.
Here’s a simple breakdown so you know exactly how to take money out of your FHSA tax-free for your first home.
What Is the First Home Savings Account (FHSA)?
The FHSA is a federal savings program designed to help Canadians buy their first home. It combines the tax advantages of both an RRSP and a TFSA:
- Contributions are tax-deductible (like an RRSP).
- Withdrawals (including investment growth) are tax-free when used for a qualifying home (like a TFSA).
Contribution limits:
- Up to $8,000 per year.
- Lifetime maximum of $40,000.
- Unused annual room carries forward (up to $8,000).
Couples can each have their own FHSA, effectively doubling the savings power.
How the Withdrawal Works
Step 1: Check Your Eligibility
- You must be a first-time homebuyer (neither you nor your spouse/common-law partner owned and lived in a home in the year of withdrawal or the previous four calendar years).
- You must have a written agreement to buy or build a qualifying home in Canada.
- You must intend to occupy the home as your principal residence within one year.
Step 2: Complete the CRA Form
- Use Form RC725 – Request to Make a Qualifying Withdrawal from your FHSA.
- One form is required for each institution if you have multiple FHSAs.
Step 3: Submit the Form to Your Financial Institution
- Your FHSA provider will review the form and process your withdrawal.
- Funds must be paid directly to you (not to a third party).
Step 4: Receive the Funds
- Once approved, money is typically deposited into your account within a few business days.
- Plan ahead so funds are available well before your closing date.
When Should You Start the Withdrawal?
Timing matters:
- You can only withdraw after your offer has been accepted.
- Ideally, wait until after subject removal in case you don’t end up removing subjects.
- If the funds are needed for the deposit or you have a very quick closing, you can request the withdrawal before subject removal — just make sure you’re comfortable with that risk.
- As a rule of thumb, start the process at least 5–7 business days before you need the money.
Important Considerations
- 15-year limit: You must use the FHSA within 15 years of opening it (or by the year you turn 71). Otherwise, funds must be transferred to an RRSP/RRIF or withdrawn (and taxed).
- Eligible uses only: Withdrawals must be for a qualifying home purchase. If you withdraw for another purpose, it becomes taxable income.
- Plan your timing: Processing can take a few days. Start early to avoid closing delays.
Quick Summary
- FHSA = tax-deductible contributions + tax-free withdrawals for a first home.
- Withdrawals require Form RC725 and a written purchase/building agreement.
- Up to $40,000 per person can be contributed.
- Must be used within 15 years (or by age 71).
- Can be combined with RRSP HBP for maximum savings.
Need help with your mortgage? Book a consultation or call 778-988-8409.
Glossary
- FHSA (First Home Savings Account): A federal savings program allowing tax-deductible contributions and tax-free withdrawals for a first home purchase.
- Form RC725: The CRA form required to make a qualifying FHSA withdrawal.
- Home Buyers’ Plan (HBP): A separate program that lets first-time buyers withdraw up to $60,000 from their RRSP tax-free for a home purchase.
Tim Lyon
Mortgage Consultant
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If you are buying a home with a suite, keeping your current home as a rental, or already own a rental property, mortgage qualification can get confusing fast. The frustrating part is that you can do everything “right” and still get very different answers depending on which lender you talk to. Here’s a simple breakdown so you understand it and don’t miss out. What are Debt Service Ratios? In Canada, lenders qualify you using two main ratios: Gross Debt Service (GDS) This looks at housing costs only , typically: Mortgage payment Property taxes Heating 50% of strata fees (if applicable) GDS typically needs to be 39% or less of your gross income. Total Debt Service (TDS) This includes everything in GDS , plus other debts like: Car loans Credit cards Lines of credit Student loans TDS typically needs to be 44% or less of your gross income. These ratios are the foundation. If they do not work, the lender will not approve the mortgage, even with strong credit and a solid down payment. How Lenders Treat Rental Income Most people assume lenders look at rental properties based on simple cash flow (rent minus mortgage payment). In reality, most lenders use one of two methods: 1) Addback A percentage of the rental income is added to your gross income for qualification purposes. 2)Offset A percentage of the rental income is subtracted from the mortgage payment tied to the rental property. Different lenders use different percentages and different worksheets. That is why the same borrower can qualify with one lender and fail with another. Benefits of Understanding Lender Methods When you understand how rental income is calculated, you can: Avoid being under-qualified by a lender with conservative rules Get a more accurate picture of your real purchasing power Choose a lender that fits your situation (instead of forcing your situation to fit the lender) Important Considerations A few key points to keep in mind: Rental income is rarely counted at 100% , but some lenders are more generous than others. The method matters just as much as the percentage (addback vs offset). If you own multiple properties, lender worksheets can change the result dramatically. Your lender choice is a strategy decision , not just a rate decision. Real-World Example: Same Clients, Two Very Different Outcomes Here’s an example comparing lenders Scotiabank and Strive, using a fictitious couple: Scenario Household income: $160,000 Existing townhome: $800,000 value with a $525,000 mortgage ( $2,500/month payment) Market rent for the townhome: $3,400/month New purchase: property with a rental suite generating $1,800/month Down payment: 10% Other debts: student loan $165/month , car loan $500/month How Scotiabank viewed it For the townhome rental, they counted half the rent and subtracted the mortgage payment, leaving an $800/month shortfall that gets added into the debt ratios. For the new purchase, 50% of the suite income gets added to income. Max mortgage : $650,700 Max purchase price : $723,000 How Strive viewed it For the townhome rental, Strive used a rental worksheet and calculated $5.20/month of income that can be added to the application. For the new purchase, 100% of the suite income gets added to income, and they did not need to include taxes or heat. Max mortgage : $878,400 Max purchase price : $976,000 The result That’s a $253,000 difference in purchasing power , with the same clients, same income, same debts, and same properties. The difference was lender policy. Quick Summary GDS and TDS ratios are the backbone of mortgage qualification. Rental income is usually counted using Addback or Offset , and each lender handles this differently. Two lenders can produce wildly different results, even with the exact same file. In the example above, lender choice created a $253,000 swing in purchasing power. Next Steps If you are planning to: Buy a home with a suite Keep your current home and convert it to a rental Use rental income to qualify Reach out and I will run the numbers across multiple lenders so you see what you actually qualify for, not just what one lender will allow. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Addback : A method where a lender adds a percentage of rental income to your gross income for qualification. Gross Debt Service (GDS) : The ratio that measures housing costs as a percentage of gross income. Offset : A method where a lender subtracts a percentage of rental income from the rental property’s mortgage payment for qualification. Total Debt Service (TDS) : The ratio that measures housing costs plus other debts as a percentage of gross income.
