Superannuation and all it entails may seem like a daunting concept if you do not know the intricacies behind it. But if you’re wondering ‘can I use my super to buy a house’, it’s definitely worth exploring because the answer is yes.
One of these things is whether it is okay to use your super to buy a house and how to do it. The process does not have to be a stressful one, but it does take some learning.
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What is superannuation?
Superannuation, or ‘super’, refers to the money that is put aside by an employer over the length of your career for you to live on once you decide to retire from work.
The concept of superannuation only works if you are adept at saving money for your retirement. The more money that you save, the more that you will have for when you decide to stop working.
There are specific instances when you will be allowed to withdraw your money, but they are limited and strictly adhered to. This ensures that what you put in, is what you will be able to take out once you hit the retirement age.
For the majority of people, your employer is responsible for paying money, known as ‘contributions’, into an account for you. This process is referred to as ‘super guarantee,’ and it is paid on top of your contracted salary and wages.
An employer must legally pay super for you if you fall into the categories of being 18 years old or over, are paid $450 or more a month prior to taxation, under 18 years old, and being paid $450 or more a month working more than 30 hours a week.
Can you use your super to buy property?
The question of if you can use your super to buy a house is one with a simple answer: yes. This may give you a sigh of relief, but it is important not to minimize the commitment it takes to do so as well as the conditions behind it.
It is not possible to use your entire superannuation to purchase a home, but you have the option to withdraw an eligible portion of your super contributions to assist with buying your first home. This is possible because of the First Home Super Saver Scheme (FHSSS).
To do this, you must be a first home buyer using the savings for a house deposit. It gives Australians a leg up when it comes to the property market. If you are a first home buyer, you have access to up to $15,000 in super per year with a maximum of $30,000. If you are in a couple, this means that you can use up to $60,000 of your voluntary contributions.
There are a few critical conditions of the FHSSS. You are only eligible if you are at least 18 years of age, have never owned Australian property before (including an investment property), have not released FHSSS funds before, live or have the intention to live in the premises you are purchasing as soon as possible, and have the intention to live in the property for a minimum of six months of the first 12 months that you own it.
In short, yes, you can use your super to buy property, but there are conditions that must be followed in order to qualify. Before diving into the process of using your super to purchase a home, it is important that you consider all the necessary steps.
Benefits of using your super to buy property
There are many advantages to using your super to purchase a home, and there are undeniable benefits that come as a consequence of doing so. If you decide to do this, your superannuation will own a tangible asset, which is beneficial in the long run. You can also count on your property’s value not fluctuating on a daily basis as you would with shares.
Another advantage is that you are inviting higher returns once you have leveraged the value of your super. You will also have better access to assets that you most likely would not have had access to before. You will also be eligible to receive a tax benefit under the guise of salary sacrificing.
Lastly, this process does not have to be a constant headache. There are professionals available for consultation when embarking on this journey. You can receive their advice, tips, and outright hire someone to handle the entire transaction. This way, you will be less likely to make an expensive mistake.
Disadvantages
Just as there are advantages to using this method to buy your home, it is important to assess the possible disadvantages when making the best decision for yourself. Firstly, your fund may be lacking in liquidity. Also, the property you purchased cannot be used as security on any of your other loans.
Unfortunately, the funds you are hoping for cannot be withdrawn until a condition of release is met, which is a process that may be draining in some ways. In terms of the home you purchase, your fund may not provide as much as you are hoping, setting you back from being able to buy it.
Documentation is also a crucial part of this process. If you get any part of the documentation incorrect, the ATO requires that you completely unwind the transaction, meaning that you will have to sell the property. This will not only cost you tens of thousands of dollars, but the stress of buying a home may become exponential.
So should I do it?
If I were to use my super to buy a house, it’d be important to note that this is no small feat, but it can pay off substantially in the long run. Your super can be used to purchase a residential home or commercial property in a fairly efficient way.
Although there are many advantages, there are also disadvantages to using your superannuation to buy a home. The choice comes down to your priorities and what you are willing to do to get that house for yourself.
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