The old adage that ‘slow and steady wins the race’ has never been more fitting than when used to describe first homebuyers. After all, unless you’re lucky enough to be gifted a hefty deposit, it’s slow going trying to save enough cash to invest into your very first home.
First Home Saver account (FHSA), is a program that gives Australians an easy and tax-efficient way of saving for their first home. It is a combination of co-contributions and low taxes.
FHSA’s 2008 launch was almost overshadowed almost instantly by the doubled grant to First Home Owners.
There was no need to save for years in order to pay a deposit. To encourage homebuyers, the federal and state governments provided combined grants and packages worth thousands of dollars that could be used to help them move quickly.
With the FHOG at $7,000 again, the economy is stable, you might consider revisiting the FHSA to see how you can move one step closer to realizing your home-ownership dreams.
How it works
You can save money with this program by matching your contribution with a 17% government-co-contribution.
The principle is simple: the more you save the government will contribute more. There are limits on how much you can save each year. The maximum annual government contribution is currently $850 – equal to 17% of $5,000 – although this amount is increasing to $935 (17% of $5,500) for 2010-11.
You’re not liable to pay any tax on your account earnings, and you can set up an FHSA with any participating bank, credit union or building society. The First Home Owners Grant may still be available to you if you already have a first home saver account.
To be eligible to open an account, you must meet the following requirements
- Ages between 18 and 65
- A tax file number
- You have never owned a home in Australia for your primary residence.
- You’ve never opened a savings account for your home.
- make contributions from your after-tax income – you can’t salary sacrifice into a FHSA
The down side
The FHSA is a great way to save money on your first home, but there are potential drawbacks.
The account works under a system known as the ‘four-year rule’. This means that you must contribute at minimum $1,000 per month to your account during a minimum of four years. You can then withdraw the money to buy a house.
Before you can access your money, the account must be kept open for at most 4 years. However, money can be withdrawn at any time if you’re 60 years or older.
Also, if you change your mind and don’t want your account anymore, you can’t simply close the account and withdraw your cash: your only option is to transfer the entire account balance to your superannuation fund.
If you plan to purchase your first home within the next few years or require greater flexibility with your money, the FHSA may not be the best option. Find out more about eligibility and frequently asked questions, as well as other details. click here.