Can I Use Super to Buy a Home In Australia?

Yes! It's possible to use your superannuation to buy property, even though it's meant to be a retirement saving account.

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Dawn Teh

Can I Use Super to Buy a Home In Australia? 

Yes! It's possible to use your superannuation to buy property, even though it's meant to be a retirement saving account.

But here's the thing. It's not as easy as just withdrawing your entire super balance and heading off to purchase a home (unless you're a retiree, over 65 years old, or have reached the preservation age).

Utilising your super to buy property has to be done in two ways:
  1. Through the government's First Home Super Saver Scheme (FHSS) — This is open to first home buyers.
  2. A self-managed super fund — This is for those looking to buy an investment property.

Remember though, these options aren't for everyone and there are conditions you have to meet.

So keep reading to learn all you need to know about using your super contributions to get into the property market.

(Bonus: We even go into some alternatives if using your super doesn't work out for you!)

Disclaimer: This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).

Top takeaways

There are 2 ways to use your super to buy property: 

  • For first home buyers: You must go through the government's First Home Super Saver (FHSS) Scheme which allows you to make extra super contributions that can be withdrawn for purchasing a home. 
  • For property investors: You'll have to use a self-managed super fund.

Of course, if you're older than 65 or retired, you're entitled to withdraw your entire super savings and use it to buy property if you wish. 

Option 1: First Home Super Saver (FHSS) Scheme

Can I use super for a home deposit?

Yes, you can use some of your superannuation fund for a house deposit. But it has to be done under the First Home Super Saver (FHSS) Scheme set up by the Australian government.

The scheme was designed to help first-time home buyers build up their home deposits as quickly as possible. 

But there are some conditions and limits you need to be aware of — you can't just take out everything that's currently in your super and use it to buy a home.

How does FHSS work?

The FHSS scheme allows first home buyers to make extra (voluntary before-tax or after-tax) superannuation contributions, which can then be withdrawn to help with the purchase of a property.

(You can't use the compulsory contributions from your employer.)

It was set up by the Australian Federal Government in 2017.

You can make contributions to your FHSS through:

  • Salary sacrifice: You'll need to make an agreement with your employer to allow part of your salary to go to your super instead. These are pre-tax amounts, and the contribution frequency needs to be discussed with your employer.
  • Personal voluntary contributions: These contributions can come directly from you or from after-tax pay made by your employer. You can make the contributions as lump sums or regular, smaller payments.

How much of the FHSS can I use to buy a house?

Here are the limits for how much super you can save for your first home through the FHSS scheme:

  • A maximum of $15,000 in one financial year.
  • A maximum of $50,000 in total over all years.

FHSS tax considerations

There are some tax benefits that make FHSS an appealing choice to many first home buyers:

Going into your super

Your super fund will only tax 15% (as opposed to the regular marginal tax rate) of contributions coming in through salary sacrifice.

Coming out of your super

When your FHSS amount is released to you from your fund, the tax on this fund will be withheld by the Australian Taxation Office (ATO). The amount withheld will be the marginal tax rate minus a 30% offset.  

Who is eligible to use super to buy a home with FHSS?

These are the eligibility requirements that must be met for you to use FHSS.

  1. Individuals must be at least 18 years of age.
  2. Be a first home buyer. You must not have owned any Australian property before (includes commercial property).
  3. You intend to be the owner occupier of the home. You have to live in it as soon as you can and stay there for at least 6 months for the first 12 months after buying it.
  4. You can only apply once for your super to be released under the FHSS scheme.

How to apply for FHSS

Withdrawing your super savings under the FHSS scheme can be done online through myGov. Here's a quick summary of the steps:

  1. Apply for your FHSS determination. Log into your myGov account, then go to ATO account > Super > Manage Super > First Home Saver. You'll be able to see the maximum amount you're allowed to withdraw straight away.
  2. Request to withdraw your money. This is also called the FHSS release request. The total FHSS amount will be deposited into your nominated bank account.
  3. Notify myGov within 28 days after you've signed a contract to purchase your new home. If you don't notify the ATO that you've signed the contract to purchase, you might be subject to FHSS tax. 

Before you start this process, make sure you're eligible for the FHSS scheme first before making any contributions.

Also, don’t sign any property contract before you request an FHSS determination.

Pros and Cons of using super to buy a house through FHSS

Pros

  • Your FHSS amount can go towards your home deposit, helping you reach your goals faster.
  • Salary sacrifice contributions benefit from the 15% (rather than marginal) tax rate.
  • Couples are allowed to make an FHSS withdrawal each so it's twice as beneficial.

Cons

  • You will be taking home less pay by salary sacrificing.
  • Depending on the value of the property you want to buy, the FHSS amount may not be able to cover the full deposit.
  • Government policies can change anytime.
  • Your money is locked into your super account and won't be easy to take out if you change your mind.

Option 2: Self-managed super fund

Can I use my self managed super fund to buy a house?

Yes, you can only use your self-managed super fund (SMSF) to buy property — but only for investment purposes and not to live in it.

Some of the benefits of this include:

  • Paying less capital gains tax (it's generally capped at 10%).
  • Accelerating the growth of your superannuation savings as any income goes to your SMSF.

However, there are some rules that you need to be aware of before using your SMSF to buy a property. For instance:

  • You cannot live in the property or use it for business purposes.
  • The property 
  • While you can buy residential property, fund members (or any parties related to members) cannot live in it.  

What if super doesn't work? (Other low-deposit home loan options)

Guarantor loan

To many people looking to buy a home, having a guarantor is one of the best ways to avoid saving up a 20% deposit.

To secure a guarantor home loan, you'll need someone (usually a family member)to act as a guarantor for the loan.

As a guarantor, they pledge a portion of the equity they own in their property as security for your loan.

In most cases, the guarantor will need to own their own home outright or have a significant amount of equity in it.

While having a guarantor can help to get you into your dream home sooner, it is important to remember that you're taking on responsibility for someone else's financial well-being.

Things can get messy very quickly emotionally and relationally if you stop making your monthly repayments. So this route involves not just financial risks, but relational risks as well.

Buying and paying Lenders Mortgage Insurance (LMI)

While it's true that most lenders like to see a 20% deposit before they approve a home loan, there is another way to do it with a smaller deposit — by paying lenders mortgage insurance (LMI).

In Australia, lenders mortgage insurance (LMI) is insurance that protects the lender if the borrower defaults on their home loan.

It is usually required if the borrower has a loan-to-value ratio (LVR) of more than 80%.

LMI is a one-off premium that is added to the loan and paid when the loan is first established. The premium is based on the size of the loan and the LVR.

In the event that the borrower does default, the insurance pays out a benefit to the lender which can be used to cover any losses.

The insurer will then pursue the borrower for recovery of any outstanding amounts. LMI provides important protection for lenders and helps to ensure that people who might not otherwise be able to obtain a home loan are able to do so.

First Home Guarantee (FHBG) Scheme

Apart from the FHSS, the government has another scheme to help first home buyers secure their dream home with a smaller deposit (and without paying LMI).

It's called the First Home Guarantee (FHBG) Scheme, but you might have also heard of it being termed the First Home Loan Deposit Scheme (FHLDS) in the past.

With this scheme, you come up with 5% of the deposit and the government will guarantee the remaining 15% to make up a 20% deposit. This is why you also avoid LMI under this program. 

So what's the issue with FHBG? It's only open to 35,000 people (or couples) each year! 

Additionally, applicants need to fulfil other criteria like being Australian citizens and falling within certain income brackets.   

Rent-to-own with OwnHome

At OwnHome, we provide home buyers with an alternative (and easier) way to own their dream home — just a 3% deposit to get started! And we do this through our rent-to-own pathway. 

Here's how it works:

  1. OwnHome purchases your ideal home. You only pay 3% of the property value upfront — that's it.
  2. You move in straight away and continue renting from OwnHome. But, part of your fortnightly payments also goes to building your security deposit which can be used to purchase your home down the line.  
  3. Buy your home from OwnHome after 2-7 years at a fixed price. 

Compared to saving up money in your super to buy your home, renting-to-own has lower start-up costs. Even if you use your super, you still have to come up with a 20% deposit. While you only need a 3% deposit to set up an OwnHome arrangement. 

Another benefit of this is that you get to start living in your dream home a lot sooner.

Want to see how the numbers stack up? Use this calculator to find out how much you'd save with OwnHome compared to renting and saving.

Discover Your Buying Power With OwnHome

Is using your super for a house deposit a good idea?

For many first-time homebuyers in Australia, the idea of using their superannuation as a deposit on a home loan is an attractive option. After all, super is designed to be a nest egg for retirement, so why not use it to help purchase a property now? 

But like any real estate decision, there are some pros and cons to this option too. On the plus side, it can help you build your deposit faster because of favourable tax rates.  

On the downside, using your super as a deposit means that your money is locked up in there. And if you change your mind about it down the road, there's no withdrawing it till you're 65 or retired. 

Ultimately, whether or not using your super as a deposit is a good idea depends on your personal situation and financial goals. 

If you'd like to explore other low-deposit pathways to homeownership, OwnHome provides a rent-to-own option that only requires a 3% deposit upfront. Use our calculator below to find out more!

Discover Your Buying Power With OwnHome

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