August 16, 2021
In this article, we’ll help you figure out how to use super to buy a house and if you’re eligible to buy a house with superannuation. This scheme is only available for first-time homebuyers. If you're interested, here’s what you need to know.
Yes, you are allowed to use your superannuation to buy an investment property using the First Home Super Saver scheme as this is currently the only scheme purposely designed so you can use your super to buy a house.
Must be 18 years old and older and has never owned a property in Australia. If you have turned 65 or have retired, then yes, you qualify to receive your super as a lump sum.
First home buyers. Eligibility for this is determined by the Australian Taxation Office (ATO), so check with them first before making any voluntary contributions to your superannuation. To access your super contributions, you can apply to the ATO when you are planning on purchasing your first home. The ATO will assess your eligibility and calculate your estimated earnings on your additional contributions.
Property investors. If you are in a Self-Managed Super Fund (SMSF), you can use money from the fund to buy an investment property but are not allowed to live in it. The members will need to make a decision together about how the superannuation is invested. This type of investment comes under the only purpose classification by the ATO, meaning it can only be used to provide retirement income for SMSF members.
The First Home Super Saver Scheme (FHSS) is a government enterprise that allows first-home buyers to make voluntary contributions to save part of their home deposit to their superannuation account and could boost the savings they put to their deposit up to 30 percent compared with the standard savings account.
Buying your first home is an exciting event of your life that can also be a little frightening. If you will use your super to buy a house, it's very essential to remember that this has its advantages and disadvantages.
This scheme lets you save money on tax repayments and the amount you can withdraw doesn’t vary with falling markets. On top of this, it grows into the property market earlier when house prices are rising faster, and you won’t be left with a large sum of the loan balance to pay off when your retirement comes.
On the other hand, the downside of this scheme is you will have less money available as you take your money out of your super. In addition to this, you might have difficulties in applying for a loan. The financier will consider many factors before lending you the money and withdrawing your money from your super does not guarantee you will get a home loan. There is also a risk of losing your dream home.
If your super doesn't work, chances are you are not eligible for the FHSS scheme. In this case, here are your options when super isn't the way to buy a house.
Guarantor. A great way to move forward in buying a property if you don’t have a deposit is through a guarantor, and they can be your family member and close friends. For this to be approved, your chosen guarantor should be an Australian citizen, must be between 18 to 65 years old (some lenders do not usually accept retirees), they should have a good credit score and of course, a stable income and have equity in their current property. The guarantor is required to pay back the loan if the buyer cannot fulfill the payments and they are also in-charge in paying the extra fees and additional charges. Having a guarantor can be a great way to speed the process.
Buy with family. Buying a property with your partner or family can be a great way to combine your savings to make the process more affordable. Make sure both of you have agreed and have clear guidelines for each buyer. Financial situations should be measured when making this decision and a fallback strategy should be considered if either one of you wants to sell their half of the property.
As mentioned earlier in the eligibility section, you can use money from the fund to buy an investment property but are not allowed to live in it. The members will need to make a decision together about how the superannuation is invested and it usually consists of one to four members.
A self managed super fund is a way of saving for your retirement. The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the representatives. This means the members of the self managed super fund run it for their benefit and are responsible for complying with the superannuation and tax laws.
Careful thought should be considered when planning to use your super to buy a house. Seek advice if you're having difficulties. After all, having your property is a great investment.
Buying a home can be exciting and is not a decision to be taken lightly, it is an excellent investment strategy wherein you would have to put yourself into your whole life. As a first home buyer, many factors should be considered when buying a home, such as assessing your financial situation, using your super funds, and source of other funds. Anyone can buy a plot of land and make it however they want it to be, but investing the time and effort is what can make it more to live in the property; it will be making a home.
If using super isn't the way for you to acquire your dream investment property, there are still other ways to do so. Rent-to-buy schemes are also available as an option to live in your future home! If Wollongong is your desired location, here are some tips on how you can buy a house in the area.
For real estate assistance, contact us at 0413 690 459, and let's work on getting your dream house today.