How can I use my superannuation to buy a house?
Superannuation is our retirement nest egg we have which grows at an exponentially higher rate than our regular savings. However, it is inaccessible to most of us until such time as we decide to retire. For many of us, that is a good thing, we have this safety net to retire comfortably on. But the question often arises about whether we can use this money to buy a home. After all, owning a home is a great asset to have when retiring.
So, when can you use your superannuation to buy a house? We have created this guide to answer this question.
Am I eligible to use super to buy a house?
The answer is no. You can’t actually use the money in your superannuation to buy a home. However, if you are a first home buyer you can take advantage of the great growth benefits super offers when saving for a home deposit. This is known as the First Home Super Saver Scheme (FHSSS).
Under the scheme, first home buyers can save up to $30,000 of voluntary contributions. First home buyer couples can also save up to $60,000 combined. This offers a lot of benefits especially when used in conjunction with the first homeowners grant. To be eligible you must plan to live in the property within the first year of owning it and be a member of an Australian super fund.
The benefits don’t just stop at the accelerated sales. A major benefit of the scheme is a discounted fixed rate of 15% tax when you take the money out of your super. This scheme has a lot of benefits to first home buyers who are looking for a boost in their savings for a deposit.
How do I request the funds?
When you have saved up enough and are ready to release the funds you will need to apply for a FHSSS determination and release form. You will need to lodge the FHSSS determination form first. After you have this signed with a signed contract you will not be able to request another. Next you will need to request the release of your funds.
If you haven’t made a request yet it is a good idea to have the following before you sign a contract:
- Have an FHSS determination
- Gain a valid release request within 14 days after the contract has been signed.
What are the pros and cons of using this scheme?
Just like any Government scheme there are some pros and cons which may vary its usefulness depending on your personal situation.
- Ability to use the scheme as a couple, combining your funds
- Save money on tax repayments
- The funds will usually return higher interest than that of high interest savings accounts
- The amount you are able to withdraw doesn’t vary with falling markets
- You will have a 12 month buffer to find and purchase a home within after you have withdrawn the money.
- The scheme could change in line with government changes
- Your take home salary will be reduced as you will be required to salary sacrifice
- It can take up to 25 business days for the funds to be released, increasing the risk of losing your potential dream home. You’ll need to have the terms of your contract in line with this time frame.
- If you sign the contract before releasing the funds a 30% FHSSS tax will apply
- $30,000 is the maximum deposit an individual can save through this scheme which may not be enough for a deposit. You’ll need to combine it with other funds.
- Returns are limited to the Shortfall Interest Charge (SIC) rate of 4.96% p.a. This is low when compared to other super funds.
What other options do I have?
If you aren’t eligible for the FHSSS there are other options for you to get into the property market. Unfortunately, none of them involve using your super, but they are each great alternatives to help you start your climb up the property ladder.
Get a guarantor
Speak to your broker about what having a guarantor involves. They will be able to talk to you about the potential suitability of the guarantor. Most lenders require that guarantors get independent legal advice prior to the loan settling, which is often a concern that borrowers have. That is, they want the guarantor to understand fully what they’re getting into, which is a good thing.
Save a larger deposit
Sometimes, all you can do is keep saving for longer and get a larger deposit. The larger the deposit you save, the lower the loan repayments will be, saving you a lot more money in the future. Figure out what you will need to pay when buying a home and how much you will need to adjust your budget in order to save.
Check out our other article on how to best put a savings plan in place.
Buy with a partner or family member
Buying with a partner or family member is a great way to make the property you are purchasing more affordable. However, it is important that you put a lot of thought into it. Everyone involved in the buyer party purchasing the property needs to be on the same page and have clear guidelines surrounding its purchase. A contract should be figured out in regards to ownership over the property and an exit strategy worked out should one buyer need to sell their half of the property. These steps are necessary to protect both yourself and other buyers should financial situations or circumstances change.
While you may not be able to directly use your super when buying a home there are still a wide range of options around. If you are a first home buyer, the FHSSS can give you a big boost in your savings for a deposit. However, if you aren’t able to take advantage of this scheme there are other great options for you. When you start considering financing for your next home come have a chat with us and we can help you better understand your options.