For anyone wondering about how to purchase they're first home, I thought I would pass on some information I have squirreled away during my finance obsession this year.
the First Home Owners Grant
Most people know what this is already. Here are some key points:
• Currently until 2020, for a house valued at under $750,000 you can:
> Receive a $20,000 grant towards the if the house is in a regional area, or
> $10,000 in a metropolitan area.
• You must live in the home for at least twelve months
• You must pay stamp duty
> Though, there are concessions that you may be eligible for when buying your own home.
You might use this grant towards the deposit on your home purchase. But, if you are purchasing a house valued at $400,000 in a regional area, a $20,000 deposit is only 5% of the total price. This subjects you to the Lenders Mortgage Insurance, which insures your bank financially should you need to default on your loan and the resale of your home doesn't cover the money borrowed. Essentially, it is an unnecessary expense that if possible, should be avoided.
How can you make up that $60,000 difference, though?
the First Home Super Saver scheme
How are you going to save money for a deposit? Most people aren't familiar with securities investment, and a return of 2.5% in interest at your bank in isn't going to get your numbers growing very quickly. You'll also get taxed on your savings, and frankly, probably tempted to blow them.
Lucky for you, you may already have an investment portfolio earning you 7-10% return every year. Your superannuation.
Here are some dotpoints:
• You can contribute up to $30,000 to your super and access it after by:
> Making before tax contributions ("salary sacrifice" negotiated with your employer) to your superannuation. 85% of these contributions can be claimed
> or, after tax contributions (deposits). 100% of these contributions can be claimed
• You are also entitled to the interest return on the money you deposited. (E.g. $30k*1.095 (net return 9.5%)=$32,850)
• You can't touch it until you actually purchase a home
So, to contribute before, or after tax?
Before-tax contributions
You'll never see this money grace your bank account, so it is a good idea for those of us with lesser self control. It also is an attractive tax dodge, because tax paid on savings (in a bank, for example) is higher than Super savings.
You'll only be able to access 85% of these though, meaning you might have to save more or for longer. When withdrawing these contributions, you will also be taxed.
After-tax contributions
You'll be able to get back 100% of these contributions. Better yet, if you are a poor University student earning under $37k/year after tax (there is also a higher bracket that is eligible). The government will match every dollar you contribute by 50c up to the value of $500 per year. (E.g. you add $1000, the government helps out with $500). These "co contributions" are in effect a tax dodge and well, who doesn't like seemingly free money? You also won't be taxed again upon claiming the funds. But, it might be hard to put away your pay check. The money is also subject to tax, of course.
Regardless of whether you are making voluntary contributions, low income owners (<$37k) also get a super tax offset every year from the government. It is 15% of the total balance, up to the value of $500.
The take home message? Get a low-fee super fund account and begin saving for a deposit that way. You can get """freebies""" from the government, reduced tax and a hefty return that most private investors would struggle to make. Better yet, the money isn't touchable and it will prepare you for long term saving too (making voluntary contributions to your super is good regardless of whether you're buying a house!)
Anyway hope this interests a few people! Happy property 😂