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#90 Borrow Smart Series || Using Superannuation to Buy a Home: What You Need to Know

Using Your Superannuation to Buy a Home: Navigating the First Home Super Saver Scheme

For many Australians, the dream of homeownership can seem out of reach, especially in today’s competitive property market. However, the Australian government has introduced a scheme that allows first-time buyers to tap into their superannuation to help fund their home purchase. The First Home Super Saver Scheme (FHSSS) offers a unique opportunity to boost your deposit savings using your super contributions. Let’s explore how this scheme works and what you need to know to potentially use it for your home buying journey.

Understanding the First Home Super Saver Scheme (FHSSS)

The FHSSS was introduced to help Australians save for their first home using the concessional tax treatment of superannuation. Here’s how it works:

  1. Voluntary Contributions: You can make voluntary contributions to your super fund, either from your pre-tax income (salary sacrifice) or after-tax income.
  2. Savings Boost: These contributions, along with associated earnings, can later be withdrawn to use towards your first home deposit.
  3. Tax Benefits: Contributions and earnings are taxed at the concessional super rate of 15%, which is often lower than your marginal tax rate.

Key Points of the FHSSS

1. Eligibility Criteria

To be eligible for the FHSSS, you must:

  • Be a first-time home buyer (have never owned property in Australia)
  • Be 18 years or older
  • Have not previously released FHSSS funds
  • Intend to live in the property for at least six months within the first 12 months of ownership

2. Contribution and Withdrawal Limits

The scheme has specific limits on contributions and withdrawals:

  • You can contribute up to $15,000 per financial year
  • The maximum amount you can release is $50,000 (plus associated earnings)
  • Contributions must be voluntary (employer contributions don’t count)

3. Application Process

To access your FHSSS savings:

  1. Apply to the Australian Taxation Office (ATO) for a FHSSS determination
  2. Receive the determination stating how much you can withdraw
  3. Apply for a FHSSS release when you’re ready to buy
  4. Use the released funds for your home deposit

Benefits of Using the FHSSS

  1. Tax Advantages: Contributions and earnings are taxed at the concessional super rate, potentially allowing your savings to grow faster.
  2. Forced Savings: Using super contributions can help you save more disciplined for your home deposit.
  3. Boost to Deposit: Can significantly increase your deposit, potentially helping you avoid Lenders Mortgage Insurance (LMI).
  4. Flexibility: If you don’t end up buying a home, the funds remain in your super for retirement.

Considerations and Potential Drawbacks

While the FHSSS offers significant benefits, there are some considerations to keep in mind:

  1. Withdrawal Timeframe: You must buy a home within 12 months of releasing the funds (extensions possible in some cases).
  2. Impact on Retirement Savings: Using super for a home deposit means less money in your super for retirement.
  3. Complexity: The scheme has specific rules and processes that can be complex to navigate.
  4. Market Fluctuations: Super investments are subject to market performance, which could affect your savings.

The Role of Your Mortgage Broker and Financial Advisor

Given the complexities of the FHSSS and its interaction with both superannuation and home loans, seeking professional advice is crucial. Here’s how your mortgage broker and financial advisor can help:

Mortgage Broker:

  • Explain how FHSSS funds can be used in conjunction with other first home buyer schemes
  • Help you understand how the FHSSS affects your borrowing capacity
  • Assist in structuring your loan application to include FHSSS funds

Financial Advisor:

  • Assess whether using the FHSSS aligns with your overall financial strategy
  • Advise on the tax implications of the scheme
  • Help you understand the impact on your long-term retirement savings

Steps to Use the FHSSS for Home Buying

  1. Check Eligibility: Ensure you meet all the criteria for the scheme.
  2. Start Contributing: Make voluntary contributions to your super fund, keeping within the annual limits.
  3. Track Your Contributions: Keep records of your FHSSS-eligible contributions.
  4. Apply for Determination: When you’re ready to buy, apply to the ATO for a FHSSS determination.
  5. House Hunting: Start looking for your first home, knowing how much you can access from the scheme.
  6. Release Application: Apply for the release of funds when you’re ready to make an offer or purchase.
  7. Use the Funds: Apply the released funds towards your home deposit or related costs.

Conclusion

The First Home Super Saver Scheme offers a unique opportunity for first-time buyers to leverage their superannuation to enter the property market sooner. By allowing you to save for a deposit within the tax-advantaged environment of superannuation, the FHSSS can potentially accelerate your journey to homeownership.

However, it’s crucial to approach this scheme with a clear understanding of its benefits, limitations, and potential impact on your long-term financial goals. The decision to use your superannuation for a home deposit should be made as part of a comprehensive financial strategy, taking into account your current circumstances, future plans, and retirement goals.

By working closely with both your mortgage broker and financial advisor, you can navigate the complexities of the FHSSS and determine if it’s the right choice for your home buying journey. They can provide personalised advice, help you understand how the scheme fits into your overall financial picture, and guide you through the application and withdrawal process.

Remember, while the FHSSS can be a powerful tool in your home buying arsenal, it’s just one piece of the puzzle. Combine it with sound financial planning, diligent saving, and expert guidance to maximise your chances of achieving your homeownership dreams while still securing your financial future.

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Download our 40-page First Home Buyer Guide. The book includes a large amount of information that will guide you during the buying process, and it provides you with information on your various finance options. 
FHB Guide Book
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