Are you a Self-Managed Super Fund (SMSF) trustee?
How much can I borrow?
We can help you to apply for:
- Standard SMSF Investment Loans: up to 80% of the property value. However, please note that most lenders will restrict your loan to 75% or 72% of the property value.
- Commercial property : up to 70% of the property value for non-specialised securities.
- Discounts: most lenders add a margin to their normal residential loan rates for SMSFs, however these margins vary significantly.
- Low doc (no income evidence): low doc loans are not available for SMSFs.
Lending policies for SMSFs vary between lenders, particularly in the way they assess your ability to repay the loan.
Please call us on 1300 889 743 or enquire online to speak to a mortgage broker who specialises in SMSF loans.
How will the banks assess my borrowing capacity?
The main hurdle encountered by most SMSF applicants is proving that there is sufficient income in the trust to support the loan.
Typically, the banks will look at the current income of the trust based on its previous two years tax returns and will then assess if that income plus the proposed rental income will be sufficient to service the debt.
Some lenders can also use the income of members or beneficiaries of the SMSF to support the application if a personal guarantee is provided.
You can use our SMSF borrowing power calculator to see how some of our banks would assess your situation.
Are there any restrictions?
There are restrictions on SMSF loans which prevent some transactions from taking place. For example:
- Construction loans may not be available. The SMSF is able to pay for renovations out of its own funds, but cannot use the borrowed additional funds for this purpose.
- Refinances of existing SMSF loans may not be available (one of our lenders now offers refinances).
- Buying a property in your SMSF that you intend to live in (owner occupied business premises are acceptable).
- Selling a residential property to your SMSF, that you or a related party owns (commercial property is acceptable).
You may also wish to speak to your accountant or financial planner to find out if your intended transaction complies with lender rules and government regulations.
How can I get approval?
Compared to home loans and commercial loans, this type of lending is relatively new.
Each bank has come up with their own way of assessing SMSF applications, so if your bank can’t help you then please contact us and our mortgage brokers will help you to find a solution.
Why use a mortgage broker?
The residential investment and commercial loans offered by the major banks are not as competitive as those offered by smaller banks and building societies.
For a standard home loan there is only a small difference between different lenders. However, for an SMSF loan there are big differences in fees and interest rates.
In particular, many major banks process loans for SMSFs via their commercial or business banking department. These parts of the banks have much higher costs than the normal home loan department, and as a result they charge more for their loans.
In addition to this, not all lenders can provide an offset account with your mortgage, which is critically important if you have a lot of cash in your SMSF.
A 100% offset account is a regular cheque account, except that it is linked to your home loan account. The lender only charges you interest on the balance of your home loan minus the balance of your offset account. The benefit of this is that you can pay off the loan much quicker and also save a lot of money in interest.
We know which lenders have offset accounts for SMSF home loans. Please call us on 1300 889 743 or enquire online and one our expert mortgage brokers will help you get an SMSF loan with a lender that best suits your needs.
What is a Self-Managed Superannuation Fund (SMSF)?
An SMSF is a special type of trust that people can set up to manage their own superannuation.
Like a normal super fund, your employer contributions still get paid into the fund and you can make additional contributions as you see fit.
However, unlike a normal super fund, the trustee (either you or your company) has direct control over the assets that your superannuation is invested in.
When is an SMSF allowed to borrow money?
There are laws restricting the use of SMSFs to borrow money, and restricting the recourse of the lender in the event that the trust cannot meet its repayment obligations.
A basic outline of the rules a trust must follow in order to borrow money, is as follows:
- The asset is an asset the SMSF could otherwise legally acquire (if it had the funds).
- The asset is held on trust for the SMSF using a security trust (known as a security custodian).
- The SMSF acquires a beneficial interest in the asset from the outset.
- The SMSF has the right to acquire legal title from the security trustee upon making all loan repayments.
- The lender must only have limited recourse against one particular asset. This means that in the event of a loan default, the lender must not be able to claim any other assets of the fund.
- Each borrowing arrangement can only be for a “single acquirable asset”. In the case of strata title or subdivisions, each title is considered a separate asset.
Why don’t most banks lend to super funds?
The majority of lenders do not lend to super funds to buy investment properties because of the smaller size of
the market, the complexity of trust loans and because the lender’s recourse is limited to the asset itself.
However not every lender sees it the same way!
Some lenders will even allow discounted residential loans to be used by super funds.
To find out which lenders offer the best features, please contact us. Our mortgage brokers know which lenders have the most competitive SMSF loan packages around.
Which banks have loans for SMSF trusts?
The major banks have not all decided to lend to super funds, leaving many bank customers unable to obtain investment loans for their Self-Managed Super Fund without seeking out a specialist broker.
We know which lenders can help with your residential or commercial property investment. Please enquire online or contact us on 1300 889 743 to find out how much you can borrow.
When should I apply for an SMSF loan?
We recommend that you apply for the loan at least two weeks before you begin looking for a property.
This process can be expedited if required, however it is always best to allow additional time to avoid disappointment.
Thinking of applying? Enquire online or call us today on 1300 889 743 to speak to one of our expert mortgage brokers who specialises in SMSF trust loans.
How long does it take to get an approval?
Borrowing in an SMSF is far more complicated than applying for a normal home loan!
We find that many of our customers take around a week to collate the documents required to apply for the loan, and then it often takes banks another week to assess and accept the pre-approval application.
How will the loan be structured?
The loan is made out to the trustee of the SMSF in its capacity as trustee with the security custodian as mortgagor.
The lender has limited recourse and if the loan is in default, they have no ability to claim the other assets held by the trust.
Some lenders require guarantees from the members of the superannuation fund, however the guarantee is modified to ensure guarantors do not have recourse to the super trustee in the event that there is a default on payment under the guarantee.
Other lenders do not require personal guarantees from the members of the superannuation fund.
Can I get low interest rates?
It really depends on the lender that you apply with. There are large differences in pricing between the major lenders.
You are likely to pay a significantly higher rate if you only talk to your current bank.
Are there no deposit SMSF loans?
It’s a common misconception that you don’t need a deposit to buy a property in your SMSF.
In actual fact you need a minimum of 24% to 25% of the purchase price to cover your 20% deposit and the other costs such as stamp duty. So why do people say that you don’t need a deposit?
The reason is that your existing superannuation can be your deposit. If you have $100,000 in a managed super fund then you can move this to your SMSF and use it as a deposit to buy a property.
Effectively this means that you may not need to save a deposit in your own name like you would for a traditional investment property purchased outside of your super fund.
Do banks look at the beneficiaries?
For new trusts, some lenders will look at the current income of the trust beneficiaries, the previous super contributions they have been making and their new proposed super contributions.
Their loan can be assessed based on their proposed super contributions if they are within the maximum amounts allowed by the ATO and if they can afford these contributions without hardship.
Lenders know the maximum amounts that you are allowed to make as concessional and non-concessional contributions. These limits can change from year to year.
They will decline loan applications that require contributions in excess of these amounts to prove your SMSF’s ability to repay the debt.
Will the lender accept my super contributions?
If you are close to the retirement age then the lender may not accept your super contributions in their assessment.
If you no longer have a personal income then of course your super contributions will cease.
In this case, the lender may shorten the loan term or reduce the amount of the loan so that the rent income can cover the repayments.
Will the lender accept other forms of income?
Some lenders are more flexible than others, however there are many banks that will not accept income from shares or interest from the current assets of your trust.
If you are selling these assets to provide the deposit to purchase the property then that income cannot be included in the lender’s assessment.
Want to know if the banks will include your income? Speak to us on 1300 889 743 or enquire online today and one of our expert mortgage brokers will get back to you.
Can my SMSF buy a property from my personal portfolio?
Your SMSF can buy a commercial property that you already own, however your fund cannot buy a residential property that is owned by you or a related party.
The penalties for getting it wrong could include paying a large percentage of your superannuation fund balance as penalty tax – so it is best to get good advice from the outset.
We recommend that you discuss any potential tax implications of transferring a property from your name into your SMSF with an accountant that specialises in Self-Managed Superannuation Funds.
How do I apply for an SMSF loan?
There are few mortgage brokers or bank managers that understand Self-Managed Super Funds (SMSF), and even fewer who are experts in lending to them.Source: www.homeloanexperts.com.au