Can I Use Super to Buy A House? A Comprehensive Guide

Key Takeaways –

• Superannuation can be used to buy a home under certain circumstances, such as through the First Home Super Saver Scheme and a Self-managed Super Fund.
• Using super to buy a home has tax implications and can impact your retirement savings, so it’s key to understand the rules and potential penalties.
• There are alternatives to using super for home buying, including guarantor loans, Lenders’ Mortgage Insurance, the First Home Guarantee Scheme, and the OwnHome Deposit Boost Loan.
• Deciding whether to use super to buy a home is a significant decision that should be made after considering your personal circumstances, financial goals, and retirement plans.

Welcome to our comprehensive guide on leveraging your superannuation to climb the property ladder. As you navigate the complex world of home buying in Australia, you might ask, ‘Can I use my super to buy a house?’

The answer is yes; certain schemes and strategies allow you to tap into your superannuation to fund your home purchase, making the dream of homeownership more attainable.

Superannuation, a long-term savings arrangement designed to provide income in retirement, is more than just a retirement fund. It can be a powerful tool in your home-buying journey.

With careful planning and a thorough understanding of the rules, you can use your super to buy a home, turning this long-term investment into a stepping stone towards your first property.

In this guide, we will delve into the intricacies of using super to buy a house, focusing on the First Home Super Saver Scheme and the Self-managed Super Fund.

We will also explore other alternatives for home buying, helping you make an informed decision that aligns with your financial goals.

Whether you’re a first-time home buyer or considering your options, this guide will provide you with the essential knowledge to navigate the Australian property market with confidence. Let’s embark on this journey together, turning the dream of homeownership into a reality.

Understanding Superannuation

Superannuation, often called ‘super’, is a compulsory LONG-TERM savings scheme in Australia designed to provide individuals with a source of income during their retirement years. It is a way to ensure Australians have enough funds to support themselves after they stop working.

Employers are required by law to contribute to their employees’ super fund, which is then invested on behalf of the employee. The goal is to GROW these funds over the course of an individual’s working life, providing a nest egg for retirement.

Can I Use My Super to Buy a House?

But the question often arises, ‘Can I use my super to buy a house?’ While the primary purpose of superannuation is to provide income in RETIREMENT, there are certain circumstances where you can access your super early.

One such circumstance is the First Home Super Saver (FHSS) scheme, which allows individuals to save for their first home inside their fund [1]. This scheme can be a beneficial way to FAST-TRACK your savings for a home deposit, thanks to the concessional tax treatment of super.

In the following sections, we will delve deeper into how to use your super for an investment property, focusing on the FHSS scheme and the Self-managed Super Fund (SMSF) [2].

Understanding these options can provide a significant boost in your journey towards homeownership.

First Home Super Saver (FHSS) Scheme

The First Home Super Saver (FHSS) scheme is a government initiative that allows individuals to save for their first home inside their super account fund. This scheme leverages the concessional tax treatment of super to help fast-track your savings.

Eligibility Requirements for FHSS

To be eligible for the FHSS scheme, individuals must meet the following criteria:

• You have never owned property in Australia.
• You have not previously requested the Commissioner of Taxation to issue an FHSS release authority.
• You live or intend to live in the premises you are buying as soon as practicable.
• You intend to live in the property for at least six months of the first 12 months you own it after it is practical to move in.

How to Apply for FHSS

Applying for the FHSS involves the following steps:

1. Make voluntary personal super contributions to your super account fund.
2. Apply to the Australian Taxation Office (ATO) to determine the maximum amount to be released from your super fund.
3. Apply for a release of your super contributions along with associated earnings.

Pros and Cons of Using FHSS

Like any financial decision, using the FHSS scheme has pros and cons.

Pros:

• Concessional tax treatment can help you save faster.
• The scheme can be used in conjunction with other homeownership programs like the First Home Owner Grant.

Cons:

• There are strict eligibility requirements.
• There is a limit on the amount you can save through the scheme.
• The process of releasing funds can be complex and time-consuming.

FHSS Tax Considerations

Tax Benefits of FHSS

The FHSS scheme offers significant tax advantages that can help you save for your first home faster. Here are the key tax benefits:

• Concessional Tax Rates: Voluntary concessional contributions and the associated earnings are taxed at 15% when contributed to your super account, which is likely lower than your marginal tax rate.
• Tax Deductions: You can claim a tax deduction for personal contributions, reducing your taxable income for the year.
• Lower Tax on Withdrawals: When you withdraw your money under the FHSS scheme, the taxable portion is included in your assessable income and is subject to tax at your marginal rate, less a 30% tax offset.

Self-managed Super Fund (SMSF)

A Self-managed Super Fund (SMSF) is a private superannuation fund you manage yourself. SMSFs differ from regular super funds and are regulated by the (ATO).

Using SMSF to Buy a House

While it’s generally not possible to access your super until you retire, there are certain circumstances where you can use your SMSF to buy a property. However, the property must meet certain CONDITIONS, and the purchase must comply with the laws and regulations for SMSFs.

• Business Real Property: An SMSF can purchase commercial property, which can be leased to a fund member or a related party.
• Investment Property: An SMSF can also purchase residential property, but it cannot be lived in by a fund member or any fund members’ related parties.

Rules and Restrictions of SMSF Property Loans

There are strict rules and restrictions when using an SMSF to buy a property:

• Sole Purpose Test: The property must meet the ‘sole purpose test’, meaning it’s purchased to provide retirement benefits to fund members.
• Borrowing Money: While SMSFs can borrow money to purchase a property, the loan must be a ‘limited recourse borrowing arrangement’.
• Property Usage: Fund members and their relatives cannot live in the property, and they cannot buy or rent the property.

Understanding these rules is crucial to ensure your SMSF property loan stays compliant and you avoid penalties.

Alternatives to Using Super for Home Buying

If using your super to buy a home doesn’t work for you, there are several other options available. Let’s explore some of these alternatives.

Guarantor Loan

A guarantor loan is a home loan where a third party (usually a family member) agrees to be RESPONSIBLE for your loan if you can’t make the repayments.

Pros:

• Allows you to borrow a larger amount.
• You may be able to avoid paying Lender’s Mortgage Insurance (LMI) [3].
• Your guarantor can take on part or some of the loan, so if you cannot fulfil the repayments, they will only be eligible for only a portion of the loan.

Cons:

• The guarantor is legally responsible for your loan if you default.
• It may affect the guarantor’s ability to get credit in the future.

Lenders Mortgage Insurance (LMI)

LMI is a type of insurance that protects the lender if you default on your home loan. It’s typically required if you borrow more than 80% of the property’s value.

When and why to use LMI:

• If you have a small deposit and want to buy a home sooner.
• It protects the lender, not you, but allows you to borrow a larger amount.

First Home Guarantee (FHBG) Scheme

The FHBG scheme is a government initiative that allows eligible first-home buyers to purchase a home with a deposit as low as 5%, with the government guaranteeing up to 15% of the loan [4].

Eligibility and application process:

• You must be a first home buyer.
• Income and property price thresholds apply.
• The scheme is limited to 10,000 guarantees per financial year.

Low Deposit Boost Loan

The Deposit Boost Loan is a type of loan that provides a boost to your home deposit, making it easier to buy a home sooner [5].

How it works and who is eligible:

• The loan is interest-free for the first five years.
• You must be a first home buyer.
• Income and property price thresholds apply.

Is Using Your Super for a House Deposit a Good Idea?

The decision to use your superannuation to fund a house deposit is a significant one. Here are some key points to consider:

Potential Benefits:

• Using your super for a house deposit can potentially fast-track your path to homeownership.
• The First Home Super Saver Scheme allows you to save money within your super fund, which can be a tax-effective way to save for your first home.

Drawbacks:

• The primary purpose of your super is to provide income in retirement. Using it for a house deposit means reducing your retirement savings, which could impact your lifestyle in your later years.
• There are strict rules and conditions to meet when accessing your super early, and failing to meet these can result in tax penalties.

Factors to Consider:

• Your current age
• Your financial situation
• Your retirement plans
• The current housing market

Before deciding, it’s crucial to weigh these factors and consider seeking professional financial advice.

Frequently Asked Questions

What Percentage of Super Can I Withdraw?

The percentage of super you can withdraw depends on the specific circumstances under which you are accessing your super.

For instance, under the First Home Super Saver Scheme, you can apply to have a MAXIMUM of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released, up to a total of $30,000 contributions across all years.

At What Age Can I Access My Super Tax-Free?

You can access your super tax-free when you reach the age of 60 and meet a condition of release, such as retiring from the workforce.

If you access your super before the age of 60, you may be required to pay tax on the withdrawal, depending on the components of your super.

How Long Does It Take to Release Super for a House Deposit?

The time it takes to release super for a house deposit can vary. Once you apply to the (ATO) to release your super under the First Home Super Saver Scheme, it typically takes around 15 to 25 business days for the ATO to process the request and for the money to be paid.

Can I Use My Super to Buy a House If I Am Unemployed?

Generally, being unemployed does NOT grant you the right to access your super early to buy a house. However, if you’re experiencing severe financial hardship or specific compassionate grounds, you might be able to access a portion of your super.

Note that these are assessed case-by-case, and strict eligibility criteria apply.

Can I Use My Super to Buy a House on a Visa?

If you’re a temporary resident in Australia on a visa, you generally CANNOT access your super until you leave Australia permanently.

There are some EXCEPTIONS, such as if you have a temporary resident visa and you’re suffering from a terminal medical condition or severe financial hardship. As the rules can be complex, it’s recommended to seek professional advice.

How Much Can I Salary Sacrifice Into Super?

Currently, the concessional contributions cap is $27,500 for all individuals, regardless of age. This cap is indexed in line with AVERAGE weekly ordinary time earnings but will only increase in increments of $2,500.

It’s important to note that if you exceed the cap, you may have to pay EXTRA. Also, the rules around superannuation contributions can change, so it’s always a good idea to check the current rules with the Australian Taxation Office or a financial advisor.

Conclusion

In conclusion, using your super to buy a home can be a great way to achieve homeownership faster. However, consider the pros and cons before making this decision.

Make sure you understand all the rules and regulations associated with accessing your super early, as well as any potential tax implications.

Sources –

1. First Home Super Saver Scheme. Ato.gov.au. Published 2017. Accessed June 28, 2023. https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/First-Home-Super-Saver-Scheme/
2. Self-managed super funds. Ato.gov.au. Published 2020. Accessed June 28, 2023. https://www.ato.gov.au/Super/Self-managed-super-funds/
3. Lenders Mortgage Insurance – CommBank. Commbank.com.au. Published 2023. Accessed June 28, 2023. https://www.commbank.com.au/home-loans/lenders-mortgage-insurance.html
4. First Home Guarantee | The National Housing Finance & Investment Corporation (NHFIC). Nhfic.gov.au. Published 2022. Accessed June 28, 2023. https://www.nhfic.gov.au/support-buy-home/first-home-guarantee
5. HomeStart Finance. Homestart.com.au. Published 2023. Accessed June 28, 2023. https://www.homestart.com.au/home-loans/low-deposit-loans/low-deposit-loan

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