First Home Saver Accounts
What is the First Home Saver Account?
First Home Saver Accounts (FHSA) came into effect in October 2008 and are aimed at encouraging each first time home buyer to save more money by using an account which offers tax breaks and government contributions.
Those who choose to open an account, and who save a minimum of $1000 per year will receive top ups from the Federal Government. The government will contribute 17 cents for every dollar saved, with a single first-home buyer who saves $5000 a year eligible to collect a maximum of $850 a year, and couples who save $10,000 a year eligible for a $1700-a-year taxpayer top-up.
Example: David is 24 and is currently renting with friends. He hopes to buy his first home in about 5 years. He decides that he can save $50 per week (about $2,600 per year). David decides to open a first home saver account and using the FIDO calculator works out that the government will contribute $442 toward his savings in the first year.
Who is eligible?
To be eligible you must meet the criteria:
- aged 18 or over and under 65;
- have not previously purchased or built a first home in which to live;
- do not have, or have not previously had, a First Home Saver Account; and
- provide your tax file number to the provider.
Account Features
The account must be open for a minimum of four years and deposits must be made in four separate financial years - they do not need to be in a row (a financial year is from July 1 to June 30).
Most major banks offer the accounts which will be capped at $75,000 and the funds must be used for purchasing your first home. Should the accounts holder wish to close the account before the fours year minimum period has occurred, the funds will be directed into superannuation.
Interest accrued in the accounts is taxed at a low rate of 15% and withdrawals will be tax free where they are used to purchase a first home to live in.
Saving for a deposit is one of the biggest challenges facing potential first home loan buyers today, and these accounts are designed with this in mind. The accounts are simple and offer tax effective ways to save funds for your first home loans. Potential first home buyers can use the accounts to make their money go further, and save effectively, so that in time, the savings accrued can be used as a deposit, for added extras, or towards the mortgage.
Example: Sarah opens an account and deposits $5,000 each year for four years. The Government contributions are $850 each year. After four years Sarah has saved $20,000 and the top ups from the Government total $3,400. Together this adds up to $23,400. With the interest accrued, Sarah has a total of $26,352 in her savings account and can use this as a deposit for her first house.
Is there a minimum I have to save?
Yes, a minimum of $1000 per year must be saved to receive top ups from the Federal Government. The account must be open for a minimum of four years and deposits must be made in four separate financial years - they do not need to be in a row (a financial year is from July 1 to June 30).
Example: You may have the account for five years before buying your first home. You may save at least $1,000 for the first two years of opening the account, deposit no savings the following year, then deposit $1,000 savings again for the next two years, and still be eligible.
Can I open a joint account?
No. Only individuals can open a First home saver account. If you are saving with your partner or spouse, you can both hold separate accounts and you will both get the government contributions on your own savings.
Other people can deposit money into your accounts, such as family members wishing to deposit money on your behalf.
You can both access your individual savings when you want to buy a home, as long as at least one of you has held an account for four years.
Example: David and Sarah are saving for a home deposit. They both have their own first home saver accounts. Sarah saved at least $1,000 for 4 years but David has only had his for 2 years. They find a home to buy together. Because Sarah satisfies the 4 year rule, they can both withdraw their combined savings to buy their home.
Benefits of First Home Saver Accounts:
1. The Government contributes to the savings
2. You receive interest on your savings
3. Low tax on your interest earnings.
When you have a first home savers account, you can still claim the First Home Owners Grant, which is currently $14,000 for established home and $21,000 if you are buying or building a newly constructed home.
Home Loan Deposit
The savings that you accrue while having a first home savers account can be used as a deposit for your first home. Most lenders require you to have around 10% of the purchase price as a deposit. The savings accounts are a great way of maximising your funds so that when the time comes to buy your first home, you have adequate deposit. Any less than at least 10% will leave you liable for lenders mortgage insurance.
Property valued at $350,000: 10% = $35,000
20% = $70,000
Property valued at $500,000: 10% = $50,000
20% = $100,000
Where Can I Open An Account?
Most major lenders offer first home savers accounts. You can open an account with a bank or a non-bank lender or credit union. There may be account keeping fees or management fees with the account so ensure you look at several accounts before choosing the right one for you.
The Product Disclosure Statement (PDS) will tell you all you need to know about fees, benefits and rules of the account and all financial institutions must give you a PDS for a first home saver account.
How Do I Withdraw My Savings?
When you are ready to buy your first home, you can withdraw your funds from your financial institution.
You must withdraw all your savings before settling the purchase contract or completing the construction. Amounts cannot be withdrawn for a first home you already own or after settlement of the contract or after completion of the construction. Whether you buy at an auction, a private sale or enter a contract to buy a house and land package, you must withdraw all your savings and close your account.
You can use the money to pay for associated costs such as the deposit on the home, legal fees or settlement fees, council fees, stamp duty, or building inspection fees.
What if my home purchase falls through?
You will not be penalised for having failed to buy or build a home in these circumstances if:
• the sale fell through for reasons that were beyond your control and were not reasonably foreseeable,
• you deposit the funds you withdrew or the amount left over after taking into account any amounts you spent trying to acquire the home (for example, legal fees, council fees, building inspection costs or seeking finance approval) into another First home saver account as soon as practicable.
In the case that you home purchase falls through, you can open another First home saver account and deposit the savings you withdrew.
To find out more about the First Home Saver Accounts you can visit http://www.ato.gov.au or http://www.homesaver.treasury.gov.au.
Got a deposit saved and want to buy now? Call and talk to a local mortgage broker about your options on  .
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