Saving up for a home loan deposit can add to the general stress of managing your finances when you’re looking to purchase a home, especially if you’re juggling household expenses and other debts. The good news is that many lenders consider withdrawn super as genuine savings and allow borrowers to use this as part of the home loan deposit.
The First Home Super Saver Scheme also allows Aussies over the age of 18 to make or arrange super contributions they can later use to purchase their first home. For instance, if an employee sets up a salary-sacrifice super contribution arrangement with their employer, they can access these contributions without meeting the usual release conditions.
What do I need to know before accessing super for a home loan deposit?
If you’re thinking about using super for a mortgage deposit, the First Home Super Saver (FHSS) scheme is probably your only option, assuming your super fund allows withdrawals. In most other cases - like accessing super early to overcome the impact of the Coronavirus pandemic - using your super for a home loan deposit could be considered an illegal use of your super. You should also remember that withdrawing super early reduces the benefits available to you when you retire. Even the ATO believes the only acceptable reason for using super to make mortgage payments is if you’re at risk of losing your home.
You should remember that the super you access through the FHSS scheme is a limited amount you’ve already voluntarily contributed. It doesn’t include contributions made on your behalf by your spouse or your employer. The scheme is only for people who are buying their first home where they plan to live, so it’s not available if you’re buying property as an investment. If you apply for the FHSS scheme, you need to first get an FHSS determination from the ATO before you can withdraw your super or sign the contract for buying your home. Consider checking the FHSS scheme rules thoroughly before applying for it or chatting to your accountant.
Are there limits on how much super I can withdraw for a home loan deposit?
If you’re eligible to withdraw super under the FHSS scheme, you can withdraw up to $15,000 of your personal super contributions for one financial year. You can’t, however, withdraw more than $30,000 worth of these contributions across all financial years. This amount may not be sizeable enough to fully cover a home loan deposit, even if you include the profit earned from investing your super contributions.
For instance, if you’re applying for a home loan to buy a home worth $800,000, the lender may ask you to pay a 20 per cent deposit. This would mean you’re required to have $160,000 for a deposit, and $30,000 would be less than a fifth of this amount. Even if the lender only asked for a 5 per cent deposit, you’d have to pay $40,000, which would mean you’d need to fund $10,000 out of pocket. Given this, you may want to check if you can access other finance sources before applying for a super withdrawal.
You should also consult a financial adviser and calculate the impact of accessing super for a home loan deposit on your eventual retirement income. While $30,000 may not appear significant enough for a home loan deposit today, the projected earnings on that amount over your working life can be substantial. You may need to choose between owning a home sooner and retiring with a lower income.