A first home saver account (FHSA) offers first time buyers government contributions towards their deposit as well as tax advantages. But what exactly do these accounts entail and are the rewards worth it?

A first home saver account is a resource available to would-be home buyers and is offered by many banks, credit unions and non-bank lenders.

While there are many contributions and low tax features associated with the account that will appeal to potential first home buyers, it’s important to look beneath the surface and read the fine print before you fully commit.

What you need to know

To be eligible to apply for a FHSA, you must:

• Be aged between 18 and 65
• Have a tax file number to present to the provider
• Not have previously purchased or built a first home in which to live in
• Not have or previously had a FHSA
• Understand that penalties apply if you open an account when you do not meet the eligibility criteria.

The features of a FHS

•  A government contribution of 17 per cent on the first $5,500 you contribute to the account each year
•  Additional government contributions to be deposited into your account after you have placed your tax return
•  The ability for both the account holder and another party, such as an employer, to make contributions into the account
•  No minimum annual deposit to keep the account active
•  Contributions not taxed when deposited into the account
•  Interest or earnings being taxed at 15 per cent as opposed to your marginal tax rate

While you – or your children, if they’re looking to buy their first home – can benefit significantly from opening a FHSA, be aware that, benefits aside, there are also numerous guidelines that come attached.

One of these to keep in mind is that no further savings will be contributed once the account balance reaches $80,000. Another to consider is that government contributions will not be made if you decide to move overseas, even if you are still making your own contributions to the account.

Withdrawing from a FHSA also comes with its own set of stipulations. When opening an account you must be mindful that a minimum contribution of $1,000 over at least four separate financial years is required before you can withdraw funds, for example.

Also be aware that there are conditions attached that limit how you can use these funds when it comes to withdrawing them. If you decide that you are no longer interested in purchasing a property you will find that you are not entitled to regain account contributions. Penalties can apply if you withdraw these funds and do not use them to purchase a property.

Lastly, remember that the property you are withdrawing the funds for must be lived in for at least six months within the first 12 months of buying.

There is a raft of costs associated with buying property on top of the purchase price – and preparing for these costs can make for much smoother sailing

Forgetting the extra expenses that go hand-in-hand with buying property is a common mistake made by many property buyers.

From legal costs to removalists, the supplementary fees and charges associated with property buying can end up adding thousands of dollars to the purchase price, sometimes as much as five to 10 per cent.

By having the foresight to factor in these additional costs you can avoid placing added pressure on yourself as well as your budget. Here are the key extra costs you should consider:

Stamp duty
Stamp duty will most likely be the biggest financial outlay home buyers will encounter, but just how big is solely dependent on the purchase price of the property.

Before you start to calculate possible liability, check whether you receive any stamp duty exemptions or concessions. Some first home buyers are able to take advantage of stamp duty breaks if they are purchasing below a predetermined threshold. These concessions vary from state to state, so be sure to do your homework to find out exactly what you may be eligible for.

Lenders mortgage insurance
If you intend on borrowing more than 80 per cent of your property’s purchase price, you’ll most likely have to pay lender’s mortgage insurance (LMI). This fee doesn’t protect you as a borrower but rather the lender in the event you default on your loan.

LMI is a one-off premium, paid upfront or capitalised into your loan. The premium you pay will be based on the purchase price of the property, the size of your deposit and the style of loan you select.

Definition of Genuine Savings 

Genuine savings is demonstrated where supporting records in the name of the applicant(s); confirm the applicant(s) has accumulated a minimum of 5% of the purchase price (3% for first home buyers) by way of progressive and regular savings over a period of not less than 3 months prior to the time of application. 

Any lump sums / large deposits are excluded unless they can be clearly shown via documentary evidence to come from the sale of an appreciating asset (e.g. shares or real estate) that had been held prior to their disposal for a minimum of 6 months. 

If the 3% / 5% minimum savings was already held 3 months prior to the application, and there has been no subsequent progressive and regular savings since, the customer must be able to demonstrate that the savings have been existent for 6 months prior to the application. 

Gifts from any source are excluded from genuine savings, as gifts do not in any way demonstrate the ability of an applicant to accumulate assets. If family support is evident (historically via a gift), then a Deposit KickStart (Family Equity Loan) loan should be considered in the first instance. 

Whilst the FHOG remains as an acceptable source of borrower’s contribution, it does not qualify as genuine savings.

Other exclusions from genuine savings:

• Advances on wages/commission from an employer
• Inheritance
• Financing of a deposit 
• Builder discount/finance
• Vendor discount/finance
• Proceeds from sale of motor vehicles
• Windfall gains
• One-off government payments (e.g. baby bonus, stimulus package payments)

If genuine savings cannot be demonstrated as per the above, the LVR must be less than 90% + lenders mortgage insurance.

Should you wish to discuss your own situation in applying for finance please do not hesitate to contact us.