When it comes to buying a home, Australians have to contend with some of the highest prices in the world. But there are still smart ways to make your dream home a reality, even if you're on a tight budget. One way to do this is by using your superannuation to buy a house.
Superannuation is a retirement savings account that is offered by employers in order to help employees save for their retirement. It is a long-term investment and should not be accessed until you reach retirement age.
But if you are finding it difficult to save up enough money for a deposit to buy a new house, you can use your superannuation to put yourself in a much better financial position and buy a house.
What Are the Two Ways to Buy a House Using Your Superannuation
There are a few different ways you can buy a home using superannuation, but the two most common are the following:
First Home Super Saver Scheme
The First Home Super Saver Scheme (FHSS) is a government initiative that allows first-home buyers to use their superannuation to help save for a deposit.
Under the scheme, first-home buyers can make voluntary contributions to their super of up to $15,000 per year and a total of $30,000 over their lifetime. These contributions are taxed at their marginal tax rate, which is usually lower than their income tax rate, so you can end up saving more money overall.
The money can then be withdrawn from your super account to help pay for your first home, along with any associated costs like stamp duty.
Self-Managed Super Fund
A self-managed super fund (SMSF) is a type of superannuation fund where the members have control over the investment decisions and the day-to-day running of the fund.
If you have an SMSF, you may be able to use your super to buy a property either by borrowing money from a bank or other financial institution or by using the equity in your home.
To borrow money from a bank, you will need to have your SMSF set up as a trust. This will allow you to borrow money against the value of your property.
To use the equity in your home, you will need to set up a limited recourse borrowing arrangement (LRBA). This will allow you to borrow money against the equity in your home, but you will not be able to use the property as security for the loan.
Why Is the Best Option, FHSS or SMSF
There are many different factors to consider when choosing between an FHSS or SMSF. Here are some key points to keep in mind:
- Flexibility: SMSFs offer a high degree of flexibility when it comes to investments and strategies. This can be a major advantage if you have specific goals in mind for your retirement.
- Control: SMSFs give you a high degree of control over your retirement savings. You can choose where to invest your money and how to structure your portfolio.
- Cost: SMSFs can be more expensive to set up and run than FHSSs. However, this cost may be offset by the flexibility and control that SMSFs offer.
- Tax: The tax treatment of SMSFs can be more favourable than that of FHSSs. This is because SMSFs can claim certain deductions, such as for investment management fees.
- Complexity: SMSFs can be more complex to set up and run than FHSSs. This is because there are more rules and regulations that apply to SMSFs.
So which one is better?
There is no one-size-fits-all answer to this question. It depends on your individual circumstances and financial goals. If you are looking for flexibility and control over your retirement savings, then an SMSF may be the best option for you. However, if you are looking for a simpler and more cost-effective solution, then an FHSS may be a better choice.
Conclusion
If you're looking to buy a house with your superannuation, there are two ways to go about it. You can either get a First Home Super Saver Scheme (FHSS) or a Self-Managed Super Fund (SMSF). Both options have their pros and cons, so it's important to weigh up your options and make the best decision for your individual circumstances.
If you're looking for a provider of self-managed super funds in Sydney, Wealthy You is a great option. We are dedicated to helping clients grow and protect their wealth. We also offer a range of investment options, including shares, property, and cash. Let us help you take advantage of your SMSF to buy the house of your dreams! Contact us today to get started!
