Key Takeaways –
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.
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.
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 . 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) .
Understanding these options can provide a significant boost in your journey towards homeownership.
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.
To be eligible for the FHSS scheme, individuals must meet the following criteria:
Applying for the FHSS involves the following steps:
Like any financial decision, using the FHSS scheme has pros and cons.
The FHSS scheme offers significant tax advantages that can help you save for your first home faster. Here are the key tax benefits:
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).
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.
There are strict rules and restrictions when using an SMSF to buy a property:
Understanding these rules is crucial to ensure your SMSF property loan stays compliant and you avoid penalties.
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.
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.
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.
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 .
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 .
The decision to use your superannuation to fund a house deposit is a significant one. Here are some key points to consider:
Before deciding, it’s crucial to weigh these factors and consider seeking professional financial advice.
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.
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.
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.
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.
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.
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.
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.