How To Use Your Super To Help Buy Your First Home

It’s tough out there for first-home buyers.

Steep property prices, rising interest rates, high living costs, and tighter lending criteria is making buying property seem like an impossible mission for many.

🏠 But there may be some relief in sight. The Government has laid out some special rules that may mean you can use your super to help buy your first home.

Buying property with your super

It’s called the First Home Super Saver (FHSS) scheme, and it’s designed to give first-home buyers a helping hand to save a house deposit.

Sounds great! So what is it exactly? Well, you can choose to make before-tax contributions to your super account through a salary sacrifice program with your employer. Then you can withdraw the funds to use as a deposit to buy or build your first home.
What’s the point of that? You’ll likely pay less tax and receive better returns on your super contributions – which should help to grow your house deposit savings faster.
Okay, I get it. Am I eligible? You may be eligible for the FHSS if you: 🎂 Are aged 18 or over. 🏘️ Have not previously owned a property in Australia. 🛏️ Intend to live in the home you’re buying for at least six months within the first year you own it. You can’t use it to buy an investment property. 🚣 Want to buy or build a residential property. Houseboats and caravans don’t count.
That’s me! Where do I sign up? Woah! You might want to slow your roll just a little. There are few important things you should know about the FHSS before you pop the Champagne.

FHSS Explained: What you need to know

Buying property is a big deal. But so is withdrawing super. Here’s what you need to know about the FHSS:

🤑 It’s not money for nothing. You are still saving your house deposit from money you earn. The government is not giving you a grant or a free ride to owning your first home.

🏦 The other key drawback is that you can only withdraw 85% of the before-tax contributions you’ve made to your super fund. That leaves 15% of the money you’ve saved for your house deposit stuck in your super account.

👛 You also can’t withdraw super contributions made by your employer. You are only able to withdraw extra super contributions you’ve made from the money you earn.

🪙 Before-tax super contributions are not tax free. Confusing, right? If you earn less than $250,000 per year, you’ll likely need to pay 15% tax on before-tax contributions you make to your super fund. 🧢 The amount you can withdraw under the FHSS is capped. For individuals, the FHSS will release a maximum of $15,000 of your voluntary contributions per financial year, up to a total of $50,000. Need more than $50,000 for your house deposit? You might need to draw on other savings.

🐢 You need to apply to the Australian Tax Office (ATO) to withdraw money under the FHSS. It typically takes between about 15 and 20 business days to receive your money.

✒️ You only have 12 months from your release request to sign a contract to buy or build your first home. If you miss the deadline, you can get a 12-month extension, put the money back into your super fund as an after-tax contribution, or pay 20% FHSS tax on money you keep. Be aware: Super funds don’t always return profits to account holders. Economic downturns or other unexpected market forces can contribute to your super fund losing money. And that could take a bite out of the extra contributions you’ve been making.

How to use the FHSS to buy your first home

Okay, so that’s all the bad news covered. There are also some great things about the FHSS. Here’s how it can help you buy your first home:

🧮 Making before-tax super contributions as part of the FHSS lowers your taxable income. That could mean you’ll pay less income tax. However, do your sums carefully. To get the best result, you may need to contribute enough to drop your income down to a lower tax bracket. But you might want to consider the impact that will have on your take-home pay and your day-to-day budget.

💰You may also pay less tax on your before-tax super contributions than you do on your general income. Before-tax super contributions are usually taxed at 15%. If you earn between $45,001 and $120,000, you’ll typically pay 32.5% income tax. The lower tax rate could help to grow your super savings faster than saving the same amount of your after-tax income in a bank account.

🤓 If your super fund performs well, you may receive investment returns on your super contributions. However, that’s not a guarantee. It’s also possible for your super fund to lose money.

👨‍❤️‍👨 A couple is allowed to combine their FHSS withdrawal for a deposit on a single property. That takes the $50,000 FHSS cap for an individual up to $100,000 for a couple.

Pro tip: Some lenders may not count before-tax super contributions as genuine savings when they are assessing your home loan application. That could lead to them rejecting your loan. You may need to shop around to find a lender that does count FHSS super contributions as genuine savings.

The bottom line

The FHSS can help eligible first-home buyers reduce your taxable income and pay less tax.

Those savings may help grow your super savings faster and get you into your first home sooner.

🔍 However, it may not be the best option for everyone. A lot of the benefits depend on your income and tax bracket, so it might pay to do your sums carefully before you jump in.

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