- Find out if you qualify to use your super to buy a house.
- Pros and cons of dipping into your super to buy property.
- Answers to your questions about withdrawing your 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 $30,000 of your voluntary contributions 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 this means you can release up to $60,000. And from July 1, 2022, the amount you can release from voluntary contributions will increase to $50,000 per person ($100,000 per couple).
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, although you can convert it into your primary residence).
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.
The minimum preservation age is 55, if you were born before July 1, 1960, rising gradually to 60 if you were born after July 1, 1964.
Pros and cons
Using your super to place a deposit on a house has its advantages and disadvantages.
- 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.
- AvoidLenders 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.
- 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 score and whether you have a history of saving.
Can I withdraw my entire super to buy a house?
This depends on your circumstances. If you have turned 65 or have reached preservation age and have retired, then yes, you qualify to receive your super as a lump sum.
SMSF trustees can choose to invest (rather than withdraw) the entire fund in a rental property, although they would have to justify this in their fund’s investment strategy.
For anyone else, the answer is no. You can only withdraw up to $30,000 of your voluntary contributions via the FHSSS. (Up to $50,000 from July 1 , 2022.)
How much super do I need to buy an investment property via an SMSF?
Laws governing SMSFs require the trustees to formulate an investment strategy, and this would normally mean having a diversified range of investments rather than investing the entire in fund in a single asset, such as a property. The purpose of diversification is to spread the risk, but there is no hard and fast rule saying that all of the fund’s money cannot be invested in a single property.
If you don’t have enough money in your fund to purchase a property outright, you may be able to borrow the balance through a Limited Recourse Borrowing Arrangement (LRBA). This is governed by very struct rules, and most lenders will require the fund to have a balance of at least $200,000.
Can I use my super to buy land?
Yes you can, both through the FHSSS and an SMSF, but what you are allowed to do is different in each case.
If you buy land through the FHSSS, you will have to build a home on the land and then live in it. But Investing through an SMSF allows you to invest in most property types, including land, provided it complies with the fund’s investment strategy.
Is it worth using super to buy property?
Using your super to put a deposit on a home can be a worthwhile investment.
But as with all financial decisions, it will depend on your circumstances and will require careful thought.
The key thing to consider is if you think the benefit from buying a house using your super outweighs the potential long-term cost of withdrawing money from your superannuation.