Alternative Deposit Sources for First Home Buyers

Saving a large enough deposit to buy your first home can seem like a daunting process. Not only are you expected to save sufficient funds to cover the deposit amount, but you also need to save enough money to cover the fees associated with buying a home.

Fortunately, there are some alternatives available that might help boost your savings amount or even reduce the cost of your fees. Here are some incentives and options that might help make it easier to get into your first home sooner.

First Home Owner Grant

Most people are aware of the First Home Owner Grant (FHOG). The FHOG is a once-off grant payment given to any first home buyer who meets the eligibility criteria.

The amount paid varies between different states, but in South Australia a first home buyer who enters into a contract with a licensed builder to construct a new home or purchase any house never previously lived in (e.g. a show home) may qualify for $15,000. You can use the funds from your grant to help cover the costs associated with purchasing your property.

Stamp duty concession

If you intend to buy an established home at a price of $350,000, you’ll pay $13,830 in stamp duty costs. However, if you choose to buy an off-the-plan apartment in a qualifying area for the same purchase price, you might qualify for a stamp duty concession.

For example, if you enter into a contract to buy an off-the-plan apartment for $350,000, you’ll receive an off-the-plan stamp duty concession of $10,100. You’ll only pay $3,730 in stamp duty costs.

There’s also the difference in how stamp duty is calculated on different types of property to consider. For example, if you buy an established home the stamp duty amount is calculated on the full purchase price.

By comparison, if you buy a house-and-land package you only pay stamp duty on the land component of the package amount. So, let’s assume your land cost is $175,000 and your construction cost is $175,000.

Your total house-and-land package price is still $350,000, but you won’t pay the same $13,830 that you’d owe if you’d purchased an established home. Instead you only pay stamp duty on the land purchase price, which is $175,000. In this instance you would pay $5,830 in stamp duty costs, which is an $8,000 saving.

Family Guarantee

If your parents have built up plenty of equity in the family home, they may be willing to use some of it to help you get into your first home sooner. Rather than give you a gift of a large lump sum of money, a Family Guarantee allows Mum and Dad to use some of the equity in their property as collateral or security for the kid’s loan.

The bank allows the first home buyer to borrow the amount of money they need to purchase a home. However, as the bank has security over some of the parents’ equity, the first home buyer may potentially avoid paying Lender’s Mortgage Insurance.

Use your super to boost your deposit

In the 2017 Federal Budget, the government announced a new First Home Super Saver Scheme designed to help first home buyers save a deposit. The basis behind the savings scheme is to allow you to potentially withdraw up to $30,000 from your superannuation savings to put towards your deposit.

You’re able to pay up to $15,000 in extra contributions per year for two years, up to a maximum of $30,000. If you’re saving with a partner or spouse, you can withdraw up to $60,000 – or $30,000 each.

After the agreed date on your First Home Super Saver Scheme application, you’re able to withdraw those additional funds to put towards your home deposit.

However, there is a catch. You can’t withdraw any cash from the balance you already have in your super fund today. You will need to open a First Home Super Saver account with your super fund so those funds are kept separate.

The scheme is set up to give you the opportunity to contribute additional amounts of money into a separate savings account. Your voluntary contributions are those you make over and above the amount paid by your employer.

You can choose to make voluntary concessional (before tax) or non-concessional (after tax) contributions. Some employers may offer salary-sacrifice options that could help with your before tax contributions.

Now for the second catch. The extra contributions you’ve paid into your Super Saver Scheme are counted towards your concessional or non-concessional contribution tax. This means you’ll pay tax on the amount of money you withdraw from the fund at your current marginal rate with a 30% tax offset.

If you’re considering the option of putting your super savings to work for your home deposit, it’s best to discuss your options with your financial planner or accountant and seek advice about what might work for your individual financial situation.

Are you ready to buy your first home?

Buying your first home is a big step, but there are plenty of options available to help you get into the market sooner rather than later. If you’re not sure what your next step towards first homeownership should be, call one of the finance consultants at Assured and discuss how we can help.

This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.