SMSF LENDING TIPS:
Buying a property in a SMSF is a popular strategy, but SMSF property loans can often frustrate a lot of first time buyers.
Some of the things you need to know about SMSF Loans
Q: Do you have a corporate trustee SMSF or an individual trustee SMSF
This can determine how much the lender will let you borrow either 70% maximum or 50%
Q: Can you service a property in your super fund / Do you have enough to purchase the property ?
The total of super contributions, rental income and other income is used to service your property loan interest and you will need to have enough money to make a
Deposit payment of 30% – 40%
A Liquidity buffer of 10% – 15%
Service a SMSF loan with an additional 3% interest loading
Q: SMSF lenders have different SMSF Lending criteria
Each lender has different credit policies for SMSF lending, some require an established SMSF, others require $150,000 – $200,000 minimum in super savings and yet others require a 10% liquidity buffer or a 10% diversity of investments in the SMSF and the interest stress test and the amount of rental income considered varies from lender to lender.
Q: What type of property are you buying in super?
All lenders provide finance for existing properties, but not every lender offers commercial property, off the plan, house and land or NRAS property SMSF lending.
TIP 1: A common mistake that hinders SMSF lending is no evidence of super contributions in the SMSF bank account.A lot of people think they can setup a SMSF and leave their insurance cover in their retail or industry fund and often forget to inform their employer to contribute their super (9.5%) into their new SMSF account.
TIP 2: Do not leave it till the last minute to start your lending. SMSF lending involves two companies and two trusts, which requires greater legal vetting and more scrutiny of servicing income and therefore it takes longer for banks to approve SMSF Loans.
TIP 3: legal advice and financial advice. Most lenders require that you obtain independent legal advice and they will need you conveyance solicitor to sign a certificate that you have obtained legal advice on the arrangement. A conveyancer offering these services cannot sign a loan document stating that you obtained legal advice. They can only assist you with the transfer of land, title searches and attend to settlement. Further, most lenders require that you obtain financial advice and that a advice document is presented or that a financial advice certificate is sign by a licensed financial adviser before a loan is approved.
SMSF lending is far more complicated than regular lending and not all brokers are appropriately experienced with this type of lending so it’s always best to seek expert advice where smsf lending is concerned and going directly to the bank can leave you with limited options, compared to a specialist in this area of practice.
Lastly, bare in mind that SMSF property is far more complicated than property purchases outside super. You will need an experienced SMSF conveyance solicitor. It is a good idea to allow for 6 -10 weeks for finance approval and settlement. Remember, SMSF conveyance is a critical step in potentially avoiding double stamp duty charges, so you need experienced people on your team, who will save you time and money.
Always seek independent legal, tax and financial advice with all SMSF property matters.