Can First-Home Buyers Use Their Super for a Deposit?

You already know what you want for your first home. You even have nailed down the specifics—from the location or suburb to the number of rooms you want. The only problem left is the deposit. Like most Australians, you probably have a difficult time saving enough for the optimal home loan deposit amount. 

In Tasmania, for instance, an average-income household would need to save for 6.2 years to afford the deposit for their first home in the state. But don’t fret because certain government grants can contribute to your house deposit. Plus, you can use your super to boost your funds. 

Today, we’ll attempt to answer the question: “Can first-home buyers use their super for a deposit?” Simply put, we’ll guide you through the government initiative called the First Home Super Saver Scheme and give you tips on how to maximise it.

How Does the First Home Super Saver (FHSS) Scheme Work?

With the FHSS scheme, people can make extra voluntary contributions to their superannuation fund, which they can later withdraw to use for a mortgage deposit. These contributions are invested alongside your regular super, potentially growing over time depending on your chosen super investment mix. When you’re ready to buy your home, you can withdraw these contributions plus the earnings to use as a deposit. 

The extra contributions for the FHSS scheme can’t be touched until you’re ready to utilise it for a house deposit. In a way, that takes away the temptation to dip into your savings. So, with the FHSS scheme, you can save for a house deposit way faster. 

The Benefits of Using Super for Your Deposit

• Tax Advantages: Voluntary concessional contributions are taxed at a lower rate compared to your regular income, which can result in tax savings and more money going towards your home deposit.
• Higher Savings Potential: The investment earnings within super can often outpace regular savings accounts. That means the money you’re saving for a home loan deposit could grow faster within the super environment.
• Caps on Contributions: There are limits to how much you can contribute and withdraw under the FHSS scheme. As of the current guidelines, you can contribute up to $15,000 per financial year, with a total cap of $50,000 contributions across all years. The scheme helps you reach your deposit goals much sooner without letting you go astray regarding your retirement goals. 

How to Qualify for FHSS and Access Your Super for a Home Deposit

First-home buyers using super for deposit can achieve homeownership sooner. To qualify for FHSS, you must:

• Be at least 18 years old. 
• Not have owned a property—including land, commercial property, investment property or company title interest in land—in Australia. 
• Intend to live in the property you want to buy for at least six months in the first year. 
• Not have applied to have super funds released through FHSS before.

You can only apply for your super funds to be released through the FHSS scheme once, but if you’ve lost ownership of a previous property due to financial hardship, you might be able to apply for it again. That includes losing ownership due to bankruptcy, natural disasters, job loss, sickness, and divorce or separation.

After applying and making extra contributions to your super fund, you can access your super under the FHSS scheme. You just need to request a determination from the Australian Taxation Office (ATO) and then apply for a release of funds. The ATO will order Aware Super to release your FHSS funds to them and deduct any applicable tax before sending the money to you. You have a year (and possibly 12 more months through extension) from the day you request a release to tell the ATO you’ve signed a contract to buy a house. Otherwise, you will need to re-contribute the money to your super. You can keep the released funds, but be mindful that these can be subject to a tax equal to 20% of your assessable FHSS released amount, less any withheld tax. 

Things to Consider

Like any financial decision, choosing to use your super for a deposit must come with a few considerations, like:

Retirement Plans

While the FHSS scheme can be a fantastic way to boost your home deposit, it’s essential to consider your overall retirement strategy. Your superannuation is initially designed to fund your retirement, so using some of your super for a home deposit may impact your super balance in the long term.

Property Type

The property you purchase must be residential and located in Australia. It can’t be a houseboat, motorhome, or vacant land unless you are building on it.

Contribution Caps

While contribution caps are listed as a benefit above, these could also be a downside. As mentioned, you can contribute up to $15,000 per financial year, with a total cap of $50,000 across all years. Make sure that the amount is enough for the residential property you’re eyeing to purchase in Australia. 

Timeframes for Purchase

After releasing your funds, the ATO will give you 12 months to sign a contract to purchase or construct a home. You must notify the ATO within 28 days of entering the contract. If you need more time, you may be granted an extension.

Let’s Talk More About Your Options

To sum it up, can first-home buyers use their super for a deposit? Definitely! 

If you’re considering using the FHSS scheme, let us help you. Our mortgage brokers in Hobart can offer expert advice, help you explore all possible options and ensure your decision aligns with your broader financial plans. Contact us today.