Usually when people think about their super, they think of it as money that’s being put away to be used after retirement. However, recently putting money into your super account has become one method of saving for a deposit on a home loan.
This isn’t as simple as it sounds, because there are specific rules and restrictions when it comes to using your super for a home loan, but there are a few different ways to do it. The First Home Super Saver (FHSS) government scheme can help first home buyers save for a deposit faster, while a self managed super fund (SMSF) can work for property investors who haven’t yet reached retirement age.
Why Use Super to Buy a House?
There are a few reasons why you might choose to use your super to buy a house, particularly if you’re doing it through the FHSS scheme.
You might want to use the First Home Super Saver scheme if you need to save money for a deposit quickly, because the favourable tax treatment of super means that you can potentially make larger contributions. If you’re on this scheme, you can make voluntary concessional (before tax) contributions to your super fund up to a maximum of $15,000 per year.
Some of the benefits of using your super to pay for your home loan deposit might include breaking into the property market earlier and avoiding Lenders Mortgage Insurance (LMI) by boosting your deposit.
Who Can Use Super to Buy a House?
There are three groups of people who would be able to use funds from their superannuation to purchase a property: first home buyers, property investors and those who have reached retirement age. Even if you fall into one of these categories, you must meet certain eligibility criteria.
First Home Buyers
If you’re a first home buyer, the federal government’s First Home Super Saver (FHSS) scheme can help you save for a deposit faster. This scheme allows you to make voluntary pre-tax contributions to your super fund that you can later release to make up your home loan deposit.
At this point in time, those who are eligible can release a maximum of $30,000 to use as their deposit. From 1 July 2022 onwards, this cap is increasing to $50,000. ($100,000 for a couple).
This money only includes voluntary contributions, not the compulsory contributions made by an employer. However, you may set up a salary sacrifice agreement with your employer which will go towards the FHSS scheme.
General eligibility criteria includes the following:
- You must be 18 years or older
- You must have never owned property in Australia, including investment property, commercial property, vacant land or any other claim to land or property
- You must not have previously made a request for the release of super under the FHSS scheme
The Australian Tax Office (ATO) will determine your eligibility and you may still be eligible even if you have previously owned a home if you suffer from financial hardship.
If you are in a Self Managed Super Fund (SMSF), you can use some of this money to buy an investment property.
However, there are strict rules associated with this method. You cannot live in the property yourself, even if it’s only part-time. The property also cannot be lived in or rented out to a trustee or anyone related to a trustee.
You will not be able to use your SMSF to take out a loan unless it contains a balance of at least $200,000. You will also usually be required to leave a certain amount of money in the fund (you won’t be able to use it all at once).
If you want to establish an SMSF specifically so that you can use it to buy property, you should consult with a bank, mortgage broker or financial adviser beforehand.
People Over 65 (Preservation Age)
If you are not a first home buyer and not in a self managed super fund, you will have to wait until you have full access to your superannuation before you can use it to buy a house.
You get full access to your super when you reach preservation age (if you’ve already retired) or when you turn 65 if you haven’t retired earlier. Preservation age varies depending on the year that you were born and is named as such because your super is a preserved benefit that you can’t access until you’re older.
The minimum preservation age is 55.
How to Use Super to Buy Property
With First Home Super Saver Scheme
If you have never owned property
You don’t have to apply to join the FHSS scheme. If you meet all the criteria, you will be eligible to request a determination and subsequent release of funds at any point.
Applications for a determination under the First Home Super Saver scheme are assessed on an individual basis. This means that if you are planning to buy a property with another person, you will both have your own separate FHSS contributions. You must apply for an FHSS determination before you sign a contract to purchase any property.
A determination is necessary to confirm the maximum amount that can be released to you under the FHSS scheme, based on the eligible contributions that you have made.
Once you have a determination, you can request a release of funds. You can request a determination multiple times but you can only request a release once.
If you have previously owned property
If you have previously owned a property in Australia and you wish to take part in the FHSS scheme under the financial hardship provision, you will need to apply for this before you start making voluntary contributions to your super. You can apply through your MyGov account or by filling out a First Home Super Saver Scheme - hardship application form.
If you are approved to take part in the scheme, the process for determination and release of funds is the same as those who have never owned property before.
With Self Managed Super Fund
Any home loans applied for using an SMSF must be taken using a limited recourse borrowing arrangement (LRBA). This involves setting up a separate trust and trustee for the property that is distinguished from the SMSF.
The SMSF must also meet the ‘sole purpose test’ - the fund can only be used and maintained in order to provide retirement benefits to its members, or to their dependents in the event of a member’s untimely death.
No one associated with members of the super fund is able to receive benefits from the investment property until their retirement - they cannot live in, purchase or receive money from the property.
The SMSF must also be used to pay for all the property expenses, including loan repayments.
The process of applying for an SMSF loan involves a number of steps, but it can be done through a lender or a bank.
Is it a Good Idea to Use Super to Buy a House?
Yes, depending on your circumstances and financial situation. There are benefits and limitations associated with this strategy, particularly if you’re taking part in the FHSS scheme.
The benefits of using the FHSS scheme to buy a house include:
- You can break into the property market earlier, which can be significant in the midst of rapidly rising house prices
- You may be able to pay off all or most of the home loan before retirement
- You can avoid LMI by saving a larger deposit, which may also make you eligible for lower interest rates
The limitations of using the FHSS scheme to buy a house include:
- It may leave you less retirement savings available when you need them
- You run the risk of purchasing a house that depreciates in value, whereas if the money had stayed in your super account it would’ve accumulated compounded earnings
- You may still be rejected for a home loan - the bank or lender will take many factors into account when considering your application for a home loan and using your super does not guarantee success
- Making voluntary contributions to your super means that this money is not easily accessible if you need it for other purposes - this could become a problem if you change your mind or decided to wait before purchasing a home
- The amount of funds you can release is capped at $30,000 - this is unlikely to be enough to enable you to save for a full deposit using this scheme
Alternative Options to Help Your Property Purchase
Using your superannuation account is certainly not the only way you can save for a home loan. You may want to consider a guarantor loan instead.
A guarantor loan requires you to use another property (usually your parent’s) as collateral instead of paying a deposit.
If you’re able to save the money for a house deposit on your own, you could also consider putting your mortgage on the market using Joust Marketplace, to ensure that you’re getting a good deal.
How Much Money Can I Take Out of My Superannuation Fund?
If you’re eligible to participate in the FHSS scheme, you can withdraw up to $30,000. However, from 1 July 2022 you will be able to withdraw a maximum of $50,000. If you’re buying property with a partner you will be able to withdraw $50,000 each ($100,000 in total).
If you’re investing in property using your SMSF, you will need to have at least $200,000 in your account. You will not be able to withdraw the entire amount at once however, because you’ll also need to use this account to pay for property expenses and loan repayments. The maximum amount that you’re able to withdraw will vary depending on how much you have in the account as well as the buying price of the property that you’re purchasing.
Can I Live in My SMSF Property When I Retire?
Yes, but in order to do so you will need to transfer the property from your SMSF to yourself. This is called an ‘in-specie’ transfer. Essentially, you must purchase the property from your SMSF.
Can 2 People Use FHSS?
Yes, but they will hold separate accounts. Each person will make individual contributions to their FHSS account, and then they may each release the maximum amount of funds if they wish.
Can You Use Australian Super to Buy a House in NZ?
You are able to transfer your Australian super to a New Zealand Kiwisaver account, but you may not be able to release the funds to buy property in New Zealand.