SMSF Home Loans
Are you part of a Self Managed Super Fund (SMSF) or are setting one up? Do you want to borrow money to purchase a residential property?
How much can I borrow?
For SMSFs looking to purchase residential investment property, most lenders will restrict your loan to:
• 72-75% of the property value: for standard SMSF investment loans.
• 80% of the property value: if you have a strong asset position and good cash flow.
It also depends on the security type
Can I get a SMSF home loan?
Traditional home loans are not available for SMSFs as legislation restricts the lender from recourse against the other assets of the trust in the event that a property needs to be sold.
What this means is that the loan is secured against the residential property in the trust and the lender can never make any claim against the other trust assets.
What is the lending criteria?
It is very important that SMSF applicants can prove that there is sufficient income to support the loan.
Typically, banks look at 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.
For new trusts, lenders will sometimes look at the current income of the trusts beneficiaries, their previous super contributions and their proposed new super contributions.
Loans can be assessed based on their proposed super contribution if they are within the maximum amounts allowed by the ATO and if they can afford these contributions without hardship.
Loans may be declined if they require payments in excess of the initial contributions.
Which banks will lend to me?
Although SMSF loan structures can be quite complex, there are specialist SMSF home loans that are specifically designed to finance residential investment properties in the trust.
As mortgage brokers, we know which lenders will quickly approve your SMSF loan with great rates.
Features of a SMSF loan
The general features of the loans are as follows:
• The security trust holds the legal title.
• The SMSF holds the beneficial interest in the property.
• The lender has limited recourse only to the mortgaged property.
• If the SMSF owns a rental property, any money received will be paid directly to the SMSF.
• Legal title is transferred to the SMSF once the property has been completely paid off.
What is a Security Custodian?
A security custodian holds the property on trust for your SMSF.
Generally, the borrower is the SMSF trustee, who can be either an individual or a company that is non ASX listed. The mortgagor is the Security Custodian of the SMSF, which is usually a company.
The role of the security custodian is to hold onto the property for the SMSF, until it is paid out and can be transferred. Some banks use their own Security Custodian company.
Note that there may be additional stamp duty charges incurred when the property is transferred from the Custodian to the trust, as there is more than one dutiable transaction.
How much can I borrow?
The amount that you can borrow for your SMSF varies between lenders. For Standard SMSF investment loans you can borrow 80% of the property value.
However, some lenders restrict your loan to 75% or 72% of the property value.
Will I get a good interest rate?
For most SMSF loans, the interest rate is around the bank standard variable rate offered by the four major banks, depending on the lender and is usually higher than residential home loans.
However, we know which lenders have the most competitive rate and can offer you a loan package to suit your needs.
What if I don’t have a large deposit?
If you want to borrow money for your SMSF but the trust does not have enough income of its own, some banks will also request that the SMSF members personally guarantee the loan.
This means that the member may have to provide the bank with additional security assets for the loan.