If there's one thing we've seen from the housing market, it's that saving up for a property is like running a race against rising costs... And you’re barely keeping up!
Property prices are skyrocketing across Australia, and may only go higher - but what if you already have a savings fund just waiting for you to cash in?
Using your superannuation fund (super) to buy a house can be a viable option but can also be a little tricky to navigate.
To help you get a better idea of this financial pathway, we’re going to be exploring how, when and where a super can be used, what it’ll cost you as well as the pros and cons.
Let’s dive in!
How to use a super to buy a house
Generally speaking, there are two investment strategies you can use to buy a home with a super:
1. Self-Managed Super Fund (SMSF)
A Self-Managed Super Fund, or SMSF, is a private or DIY superannuation fund that can have up to 6 members.
Starting an SMSF is quite a big responsibility and you will need to comply with super and tax laws. Getting it wrong can have serious financial impacts, so it’s always best to consult with a licensed financial advisor to make sure this is the right decision for you.
As the name suggests, an SMSF will be managed by you and any trustee members. This can be a great way to finance your property purchase, but your trustee member has to be open to it too!
If you’ve got the green light, the next step is to find out if the property you’re looking at meets the SMSF rules.
Borrowing or ‘gearing’ your property through SMSF
One way of using your SMSF to buy your first home or investment property is to use it as a deposit against a loan.
Let’s use an example:
You find the perfect piece of property but it costs $600,000 and you need to take out a loan to purchase it.
If you have a total of $300,000 in your super fund, you could use $200,000 as a deposit, and take a loan for $400,000 to cover the purchase cost of $600,000.
Using this method, you get the benefits of both leveraging and gearing.
However, there are very strict borrowing conditions. A SMSF home loan should be taken through a ‘limited recourse borrowing arrangement’ (LRBA).
An LRBA sets up a separate property trust and trustee outside the superfund structure.
All the property’s expenses and income obtained go through the super fund’s bank account and the super fund must meet all loan repayments.
Investment Property Criteria
If you’re making an investment through a SMSF, it should be done on an arm’s length basis.
You will not be able to buy properties from other fund members or related parties such as:
- The relatives or business partners of fund members
- The spouse or children of fund members
- Any companies or trusts controlled or influenced by fund members or their associates
2. First Home Buyer Super Saver Scheme (FHSS)
If you’re using your super to buy your first house, the First Home Super Saver Scheme (FHSS) can help you buy it even quicker.
The FHSS scheme lets first home buyers make voluntary contributions towards their super and use it as a deposit for the property.
You can save up to $30,000 of voluntary contributions overall. If you spread it across the financial year, you may be able to save a maximum of $15,000. If you’re saving up with a partner or spouse, contributions can be doubled to $60,000.
It’s important to note that voluntary savings cannot exceed the contribution caps for each year. Additionally, on withdrawal of the funds you will be taxed at a discounted fixed rate of 15%.
Recent research shows that around 30% can be saved through the FHSS scheme.
Here’s an example to illustrate:
If you earn $65,000 per annum and contribute $15,000 to your super, you could end up collecting $25,280 that can be put towards your deposit.
This means that you’ve collected an extra $5,834 or 30% more than you would have if you used a standard deposit account.
Once you’re ready to release the funds, you need to apply for an FHSS determination.
When the determination is complete and all the paperwork is done, you can apply for the funds to be released (the maximum releasable amount will be $30,000).
The first home buyer benefits don’t end there though! The FHSS scheme could also be used in conjunction with the First Home Owners Grant.
If you’re eligible, you could save up for a home deposit faster, and receive a $10,000 grant to buy your new home!
When can I access my super to buy a house?
If you’re over 65 or a retiree, you have full access to your superfund and can use it however you please.
If you’re under 65 or not a retiree, you might not be able to use your super directly to buy a house. Australian state rules are quite strict on what a super can be used for.
However, you might be able to use your super indirectly to buy a property if you are:
- 18 years or older and never owned a property in Australia
- A first home buyer using your voluntary personal super contributions and not the compulsory contributions made by your employer.
- A property investor who has a self-managed super fund (SMSF)
Can I use my full super balance to buy a house?
You cannot use the full super balance to buy an investment property. The banks may only lend up to 70% of the house value and may not allow Lender’s Mortgage Insurance to increase that amount.
A certain amount should be left in your super as a buffer to bear any hidden costs that may come up when buying the home.
Under what conditions can I use my super to buy a house?
If you’re a first home buyer or a property investor over 18 years old, and do not own a property in Australia already, you may only be able to use your super after you’ve collected a substantial amount that you can use as a house deposit.
Your monthly income and saving contributions play a big role in deciding when you could cash in.
If you’re eligible, the FHSS scheme may help you save faster. Based on an annual income of $40,000 and a minimum house deposit of around $20k, you might be looking at saving for 2 to 5 years, depending on your annual contributions:
FHSSS $15,000 Annual Contribution for 2 Years
Annual Reduction To Income
Deposit Available After 2 Years
Additional Savings ($)*
Additional Savings (%)*
FHSSS $6,000 Annual Contribution for 5 Years
Annual Reduction To Income
Deposit Available After 2 Years
Additional Savings ($)
Additional Savings (%)
Source: 2017-2018 FHSS Budget Estimator. *Compared to a standard deposit account (2% per annum)
If you don’t intend to take out a loan or go through the hassle of calculated savings every month, you may only be able to use your super when you’re 65 or a retiree.
Should I expect additional fees when using my super to buy a house?
Unfortunately, buying a property through a SMSF is not free of charge. You may have to shell out for:
1. Upfront or SMSF establishment fees such as costs for the trust deed, ATO application form, and general trust advice.
2. Ongoing/Operating Costs:
- Australian Taxation Office (ATO) supervisory levy: $259
- Audit fee: $359 to $639
- Financial statement and tax return preparation: $525 to $1,500
- Actuarial certificate: $110 to $285
- Administering assets such as property: $220 per property
- Full SMSF administration (includes ASIC and ATO fee, financial statement and tax return preparation and audit fee): $1,200 for low-cost funds and $2,660 for high-cost funds
3. Property Purchasing/Management Costs such as stamp duty, transfer fee, legal fees etc.
Find more insights on homeownership costs here.
What are the advantages and disadvantages of using your super to buy a house?
Each financial pathway offered by a super has its own pros and cons. Weigh both sides carefully before plunging into your super savings - and always consult a financial advisor first!
FHSS vs SMSF: Pros and Cons
Type of Fund
First Home Super Saver (FHSS)
✅ Lower tax rate of 15%
✅ Falling markets have no effect on the amount you can withdraw.
✅ Ability to pay off all or most of your home loan during your working life rather than when you’re retired.
✅ A bigger deposit means you no Lenders’ Mortgage Insurance and better interest rates.
❌ The scheme may change in line with government changes
❌ Funds may take up to 25 days to be released - a longer wait
❌ FHSSS tax of 20% if you are signing a contract before releasing the funds.
❌ Limited returns compared to other super funds - SIC rate at 4.96% p.a
❌ Less financially comfortable in your retirement
Self-Managed Super Fund (SMSF)
✅ You can rent out your property to pay off your debt.
❌ More costly than other loans
What if I can’t use my super to buy a house?
Use a guarantor!
A guarantor could be anyone - even your family and close friends! However, they still need to meet a few requirements. The guarantor:
- Should have equity in their current property
- Should have a stable income
- Should have good credit
- Be an Australian citizen
- Be between 18 and 65 years old as lenders may not usually accept retirees
If you fail to pay back the loan, the guarantor will have to pay the full amount plus any fees and charges that may apply.
The good news though is that a guarantor can opt to take up just a part of the loan. This way, only a portion of the loan may fall back on them.
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