Can I Use My Super to Buy a House?

While superannuation is primarily designed to fund your retirement, there are limited circumstances where it can also assist with a property purchase. Since a super is not a regular savings account, you generally cannot withdraw your balance early just to buy a home, but specific government-approved strategies allow you to use your super in a structured way to support your property goals.

One of those options available to first home buyers is the First Home Super Saver Scheme (FHSSS). This scheme allows you to make voluntary contributions to your super. Another strategy involves establishing a Self Managed Super Fund (SMSF) to purchase an investment property. Options are varied and plentiful.

Remember that superannuation is one of your most important long-term financial assets that support your retirement. Your decision to use it for property purchase, whether through the FHSSS or an SMSF, should be made carefully.

Read: Benefits and Risks of Debt Recycling.

How Can I Use My Super to Buy a House?

There are ways to use your super account to help buy a house, but it’s not as simple as withdrawing your balance whenever you like. A super account is specifically designed for retirement, and strict rules apply when you choose to access it.

Generally, you cannot withdraw your super early to buy your first home unless you have reached preservation age and met a condition of release, which in this case would be retirement. However, there are three main pathways available depending on your circumstances:

• Using the First Home Super Saver Scheme (FHSSS) to help save a deposit
• Purchasing an investment property through a Self-Managed Super Fund (SMSF)
• Accessing super once you’ve reached preservation age.

Buy a new home before selling your current one with bridge loans!

Use the First Home Super Saver Scheme to Buy a House

The First Home Super Saver Scheme (FHSSS) allows eligible first home buyers to withdraw certain voluntary super contributions to help fund a deposit on their first home. Therefore, with FHSSS, your dream of home ownership comes true as soon as you’re ready to buy.

Would you like to build your own home? With owner builder loans, fund your self-managed build in stages!

Here, rather than saving for a deposit in a regular bank account, you can make voluntary contributions to your super fund. These contributions fall into two major categories:

• Concessional Contributions: Concessional contributions are before-tax contributions, such as salary sacrifice contributions made through your employer or personal contributions that you claim as a tax deduction.
• Non-concessional Contributions: These are after-tax contributions that you make from your take-home pay and do not claim as tax deductions. Since the income tax on this money is already paid, these contributions are not taxed again when entering your super fund.

Are you a self-employed or non-traditional earner looking for a home loan alternative that doesn’t rely on pay slips and employment contracts? A Low Doc Home Loan is just the option for you!

Who is Eligible for the First Home Super Saver Scheme?

The FHSSS is specifically designed for first time buyers; if you have previously owned a property, you are not eligible. Further, you must meet the following criteria:

• Be over 18 years of age.
• Be a first home buyer, you shouldn’t have previously owned property in Australia.
• Intend to live in the property for at least six of the first 12 months after purchase.
• Not previously used the FHSSS to purchase a home.

Please note that eligibility is assessed on an individual basis, so if multiple people are buying the same property, such as couples or siblings, every person can access their own eligible FHSSS contributions to help fund the purchase.

Discover why the lender’s mortgage insurance is paid, and whether you can avoid paying the LMI at all.

How Does the FHSS Work?

Rather than saving in a regular bank account, the FHSSS allows you to make additional voluntary contributions to your super fund and later withdraw these contributions, along with associated earnings, to purchase your first home. This approach can speed up your savings and provide significant tax advantages.

Among the two types of contributions you can make, concessional contributions made before tax are taxed at just 15% within your super fund, which is typically lower than most individuals’ marginal income tax rate. This makes concessional contributions a tax-effective way to grow your home deposit faster.

With No Deposit Home Loans, buy your dream property without upfront savings!

On the other hand, for non-concessional contributions, tax has already been paid on these funds, so no additional tax is applied when they are added to your super fund, allowing the entire contribution to count toward your FHSS savings.

You can contribute up to $15,000 per financial year under the FHSS, with the maximum withdrawal limit being $50,000. With this, first home buyers can strategically save for several years, combining both concessional and non-concessional contributions to maximise their deposit potential.

Once you’re ready to purchase your home, you can apply to the Australian Taxation Office (ATO) for an FHSSS determination, which confirms the amount you can withdraw and then request a release of those funds.

Stamp duty is a tax on property purchase that adds to upfront costs. Understanding the rules early helps reduce costs!

How Much Money Can You Release From Your FHSS to Buy Your First Home?

Under the First Home Super Saver Scheme, those eligible can withdraw up to $50,000 of their voluntary super contributions, along with the associated deemed earnings, to put toward a home deposit. These contributions can include concessional contributions as well as non-concessional contributions.

When it comes to the withdrawal process, the scheme has specific rules for how much of your contributions can be accessed. You can withdraw 100% of your eligible non-concessional contributions, meaning all after all tax contributions count toward your FHSS savings. For concessional contributions, which are made from pre-tax income, you can access 85% of the total eligible contributions.

See how to pay off your mortgage faster for tips to pay off your home loan in only 10 years!

At the same time, the ATO also calculates deemed earnings on your voluntary contributions. These earnings are added to your withdrawal amount, reflecting the approximate growth your contributions would have generated if they had remained in your super fund.

With the combination made, from deemed earnings and contributions, you can significantly boost the amount available for your home deposit, providing a faster and more tax-efficient way to save compared with traditional savings methods.

Also Read: Negative Gearing vs Positive Gearing: Pros and Cons

Benefits and Risks of Using FHSSS

The First Home Super Saver Scheme (FHSSS) is a powerful tool for first home buyers, but like any financial strategy, it comes with both advantages and potential drawbacks. Understanding these benefits and risks is essential before deciding whether to use the scheme.

Access home equity without selling through reverse mortgages or home equity release!

Benefits of the First Home Super Saver Scheme (FHSSS)

• Tax Benefit: Among many, one of the main benefits of the FHSSS is that it allows first-home buyers to boost their savings for a deposit by taking advantage of the concessional tax treatment of superannuation contributions. Contributions made through salary sacrifice or voluntary contributions are taxed at 15%, which is generally lower than most individuals’ marginal tax rates. This tax advantage, combined with the deemed earnings calculated by the Australian Tax Office (ATO), can help grow your savings faster compared to savings kept outside super in a standard bank account.
• Flexibility for Couples: If you are applying together with your partner, utilising the FHSSS, where benefits are assessed per person rather than per property, helps contribute and withdraw under the scheme separately. This means that if both partners are eligible, they can each effectively double the potential savings toward a first-home deposit.
• Encourages Disciplined Saving: Making contributions with super encourages disciplined saving. Funds kept in superannuation are not easily accessible for everyday expenses, reducing the temptation to spend and keeping your home deposit intact.

Use deposit bonds and secure your dream property with no upfront deposit, while keeping your funds in assets and avoiding liquidation!

Risks of the First Home Super Saver Scheme (FHSSS)

• Reduces Long-Term Savings: Despite the benefits, risks and limitations are inevitable. Early access to super can reduce your long term-savings. Using the funds saved for retirement for a home deposit means sacrificing the potential of capital growth over many years, which can directly impact your retirement plans.
• High Risk: The process of accessing FHSS funds takes time. After you release a request to the ATO, it typically takes 15 to 20 business days for you to receive the money. This can cause stress or even risk missing out on a property if the timing isn’t carefully managed with the contract and settlement dates.
• Time Constraints: Once the release of funds is approved, you must use the amount to buy or build your first home within 12 months, or you may have to recontribute the money to your super or pay a 20% FHSS tax on the amount withdrawn. If you ultimately do not use the funds to purchase a home, the money remains in your super until retirement, therefore cannot be accessed for other purposes.

Did you know that you can buy a home with just 2% deposit? With the Australian Help to Buy Scheme, it is possible! All with a smaller loan, lower repayments and no LMI.

How Much Can First Home Buyers Save Using the FHSS Scheme?

You should already know that the FHSSS helps you grow your deposit faster while helping make voluntary super contributions and later withdrawing them to buy a home to live in, so how is it different from a standard savings account? How much more can you save through FHSS, and is the amount even worth the trouble?

Let’s suppose you earn $95,000 per year and decide to contribute $15,000 of your pre-tax salary toward your first home deposit. If you took that $15,000 as normal income, you would pay a marginal tax of around 32.5% plus the medicare levy, which amounts to 2% of your taxable income, leaving you with roughly $9,900 after tax to save.

On the other hand, if you contribute the same $15,000 into your super under the first home super saver scheme, it’s taxed at just 15% on the total. That means you would pay $2,250 in contributions tax, leaving $12,750 still invested. When you withdraw FHSS funds later, the amount is included in your assessable income, but you receive a 30% tax offset, which reduces the overall tax payable.

Clearly, the benefits are noticeable. If planned and executed properly, first home buyers have more to gain than lose with the use of the FHSS scheme.

The Family Home Guarantee Scheme is perfect for single parents looking to buy their dream home sooner!

How to Apply For a Home Loan Using the FHSS?

The application for a home loan using the FHSS involves several key steps. First, you’ve got to request an FHSSS determination from the Australian Taxation Office (ATO). This confirms how much of your voluntary super contributions, including associated earnings, you’re allowed to withdraw.

Lenders use the same determination to assess your borrowing capacity and deposit position. Further, you will also need to provide your standard income and financial documents to support your loan application. Based on this, a lender may issue pre-approval, which is often conditional on the release of FHSS funds.

You can request the release of your funds either before or after signing the contract. If you sign first, you must request release within 90 days. Once released, funds typically take around 15 to 20 business days to arrive. If funds are requested before purchase, you generally have 12 months to sign a contract or start building, with a possible 12-month extension granted by the ATO.

Check Out: Conditional Approval Vs Unconditional Approval.

Use a Self-Managed Super Fund (SMSF) to Buy an Investment Property

If you are looking to purchase a home for investment and not for residence, you can use superannuation to invest through a self managed super fund (SMSF), but the eligibility rules are strict.

To begin, you need to understand that any property purchased must be for investment purposes only, which means neither you nor anyone related to you can live in or rent the property. Doing so would breach the sole purpose of the SMSF, which is to have itself preserved for retirement and not for providing present-day benefits to members.

Decide whether using a mortgage broker is the right decision for you by comparing the benefits and risks!

Using an SMSF to buy property has notable tax advantages. The rental income in the accumulation phase is taxed at just 15%, while the capital gains on properties held for more than 12 months are excused to be taxed at only 10%. When members start receiving a pension at retirement, rental income and capital gains from the property can become completely tax-free.

At the same time, if you are over 60 and looking to withdraw lump sums, the withdrawals are generally tax-free. To successfully invest in property through an SMSF, you must ensure the fund has sufficient funds for a deposit and liquidity buffer. Lenders typically require a 20 to 30% deposit plus associated costs, and the SMSF should retain roughly 10% of the property’s value for liquidity after purchase.

Investing in property through an SMSF is advised because it offers long-term growth potential and diversification of your retirement portfolio. However, it comes with risks. SMSFs come with a dozen complex regulations. You’ll need to be extremely careful budgeting for ongoing legal, accounting and property management costs, which can run into thousands each year.

Related: How to Calculate Rental Yield?

Benefits

• Tax benefits for rental income. If you sell the property, while still working or in the accumulation phase, your capital gains tax liability will be reduced to 10% if the property is held for over 12 months.
• You’re able to diversify your investments while reducing reliance on shares or cash, spreading the risk.
• Investing in property through an SMSF can offer long-term capital growth, directly boosting your retirement income.

It’s possible to refinance with bad credit, learn more to boost your approval and reduce repayments!

Risks

• Using an SMSF to buy a property means you or your relatives cannot live in the property.
• The regulations governing SMSF purchases are strict and require abiding by several reporting obligations.
• Several costs need to be factored in, from legal, auditing, and accounting to property management fees.

Get a guarantor for your home loan, someone willing to use a portion of their equity as additional security for your home loan and qualify with a much lower deposit.

How Much Money Do I Need in My SMSF to Buy a First Home?

To purchase a property through an SMSF, a major requirement is ensuring your fund has enough money to cover both the deposit and a liquidity buffer. Lenders typically require a deposit of 20 to 30% of the property’s value. Also, your SMSF should have approximately 10% of the property’s value as liquidity after the purchase to cover whatever ongoing expenses that might be present, from loan repayments to maintenance costs.

For instance, if your property’s value is $600,000, a 20% deposit will amount to $120,000 and a 10% liquidity buffer to $60,000. The total amount required in the SMSF will be $180,000. This ensures that the fund can legally and safely hold the property while complying with superannuation rules. Having sufficient liquidity is essential, especially if the SMSF borrows under a Limited Recourse Borrowing Arrangement (LRBA), because then the property itself is the only security for the loan.

Find out the perfect time to refinance your home loan for the best loan rates and features!

Buying a Home at Preservation Age

Preservation age refers to the minimum age at which you can access superannuation benefits. Once you reach there, you can legally access your super to buy a home. This allows you to withdraw some or all of your super, either as a lump sum or through an income stream, depending on your retirement status. Accessing your super at preservation age gives you the flexibility to use the funds however you wish, including purchasing a home to live in. Here, no restrictions are preventing you from occupying the home yourself. However, it is wise to speak with a registered financial planner to understand any tax implications or effects on your retirement planning before making withdrawals.

Increase the chances of your home loan approval while securing a loan that best fits your financial situation with a thorough Debt-to-Income Ratio calculation!

Benefits

• You have full control over your funds. With the access its up to you to decide how and when to use the money.
• You can occupy the property as you like. Unlike with SMSFs, you are free to have your own home.
• Purchasing a debt-free home can lower living costs and provide stability in retirement.

You might be interested in: How do Rent to Buy Schemes Work?

Risks

• Withdrawing a lump sum can significantly decrease your long-term super balance, which is not financially ideal.
• Securing a home loan after retirement may be harder, and there is a higher risk of mortgage stress.
• Using your superannuation fund for a home may affect eligibility for the age pension due to asset and income tests.

Several factors affect how much house you can afford. Discover all such aspects to reach a budget goal and create a framework to estimate your capability.

Which Option is the Best For You?

Choosing how to use your super to buy a home depends on your individual financial goals, circumstances and eligibility. Each option serves a different purpose. Where using your super at preservation age allows you to access your funds with full control over what you choose to do with the amount, the FHSSS helps first home buyers save tax-efficiently for a deposit, without immediately reducing long-term super balances. Likewise, through SMSF, property investments also become possible.

Overall, it’s important to understand that your super fund is designed to support your financial well-being in retirement, so you’ve got to balance your short-term home ownership goals with long-term security. Never blindly prioritise one over the other.

Seek professional financial advice to understand the tax implications, benefits and risks of each option to ensure you’re making the right decision. If you’re considering a mortgage, consulting an experienced mortgage broker such as Nice Builds, based in Brisbane, can help clarify your borrowing capacity and guide you through the best following steps.

FAQs