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SMSF Lending Tips

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

SMSF Lending Tips: Navigating the Complex World of SMSF Property Loans

Buying a property within a SMSF has become an increasingly popular strategy, but navigating the world of SMSF property loans can often be challenging and overwhelming for first-time buyers.

Here are some important 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 up to 70% 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. You will need to have enough money to make a deposit payment of 30% – 40%, a liquidity buffer of 10% – 15%, and service an 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. The interest stress test and the amount of rental income considered vary 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 hindering SMSF lending is not having evidence of super contributions in the SMSF bank account. Many people think they can set up an SMSF, leave their insurance cover in their retail or industry fund, and often forget to inform their employer to contribute their super (11%*) into their new SMSF account.

TIP 2: Don’t leave it until the last minute to start your lending process. SMSF lending involves two companies and two trusts, which require greater legal vetting and more scrutiny of servicing income. As a result, it takes longer for banks to approve SMSF loans.

TIP 3: Obtain legal advice and financial advice. Most lenders require that you obtain independent legal advice, and they will need your conveyancing 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. Furthermore, most lenders require that you obtain financial advice and that an advice document is presented, or a financial advice certificate is signed 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. It’s always best to seek expert advice when it comes to SMSF lending, as going directly to the bank can leave you with limited options compared to a specialist in this area of practice.

Lastly, keep in mind that SMSF property purchases are far more complex than property purchases outside of super. You will need an experienced SMSF conveyancing solicitor. It’s a good idea to allow for 6-10 weeks for finance approval and settlement. Remember, SMSF conveyancing is a critical step in potentially avoiding double stamp duty charges, so you need experienced professionals on your team who will save you time and money.

Always seek independent legal, tax, and financial advice with all SMSF property matters.

*11% mandated super contributions will commence from 1 July 2023

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