The short version
- The First Home Super Saver Scheme lets first home buyers save up to $50,000 of voluntary contributions in super for a deposit.
- A self managed super fund can buy property, but you can't live in it.
- Older buyers can put up to $300,000 from selling a home into super.
If you want to buy a house and hope to use funds in your super to help do it, then you're probably wondering how much you can use and under what conditions.
We decided to dig into the documentation and find out. So if this sounds like you, read on, because we have the answers.
Who can qualify to withdraw their superannuation to buy a house?
There are three main types of home buyers able to use superannuation for property purchases: first home buyers; property investors; and over-65s / retirees.
First home buyers
If you are a first home buyer, you can gain access to your super under the Federal Government's First Home Super Saver Scheme (FHSSS).
However, it's important to note the scheme only allows first home buyers to use their voluntary personal super contributions, not the compulsory contributions made by their employer.
You can release up to $50,000 of your voluntary contributions (counting a maximum of $15,000 a year) to add to the deposit on your first home – either pre-tax contributions (usually as a salary sacrifice arrangement or to create a tax deduction) or contributions made from your post-tax income.
If you are a couple, you can each use the scheme, so together you can release up to $100,000.
Property investors
If you are in a Self Managed Super Fund (SMSF), you can use money from the fund to buy an investment property.
This type of investment comes under 'sole purpose' classification by the ATO, meaning it can only be used to provide retirement income for SMSF members.
It is also bound by strict rules. For example, you can't live in the property yourself or rent it to a relative, and you can't simply turn it into your home later. You would generally have to buy it from the fund at market value once you can access your super.
Over-65s, or retirees who have reached 'preservation age'
If you're not a first home buyer and not in a Self Managed Super Fund, the only other circumstance in which you can use your super to buy a house is when you have full access to your superannuation.
You get full access when you turn 65 (even if you haven't retired), or when you reach 'preservation age' and have retired.
Preservation age refers to the fact that your super is a 'preserved benefit'.
The ATO determines your preservation age based on your date of birth.
Preservation age is now 60 for anyone born after 30 June 1964, and everyone born earlier has already reached it, so in practice it means age 60.
Pros and cons
Using your super to place a deposit on a house has its advantages and disadvantages.
Pros
- Get into the property market earlier, possibly a major advantage when house prices are rising much faster than incomes.
- Pay off all or most of your home in your working lifetime. If you wait longer to buy a home, you may be left with a large home loan balance to pay off in your retirement.
- Avoid Lenders Mortgage Insurance (LMI). Boosting the size of your deposit may mean you avoid paying LMI, and you may also be able to secure a better interest rate on your loan.
Cons
- Less financially comfortable in retirement. Taking money out of your super means you may have much less money available in retirement than if you had left the funds in place.
- Risk of shrinking asset value. There is the possibility your home value will remain stagnant, or worse, depreciate, whereas most funds held in superannuation increase substantially through compounded earnings.
- You may still fail to qualify for a loan. Withdrawing money from your super for a home deposit does not guarantee you will get a home loan. Your lender will take many factors into account before loaning you the money, including your credit history and whether you have a history of saving.