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How do banks assess trust applications?

Posted: Sat Sep 27, 2014 7:29 am
by arnie
Hello Home Loan Experts forum! I have recently found out that I can borrow using a trust. I would like to take out a home loan using my trust to buy a house in Bowen, QLD. I want to know how banks assess trust applications and what additional documents I may require. Can anyone explain this to me?

Re: How do banks assess trust applications?

Posted: Mon Sep 29, 2014 8:11 am
by Otto Dargan
Hello arnie and welcome to the forums.

Borrowing with a trust offers asset protection as well as tax advantage, which is why trusts are often used to purchase investment properties.

Lenders commence the evaluation of trust applications primarily with a full credit assessment. Aside from this, lenders also tend to look at:
  • The type of trust - Lenders have their own personal preferences to different types of trusts. Some may prefer family trusts while others give preference to self managed superannuation funds (SMSF).
  • The trust credit file - Trustee companies and, in some cases, trusts themselves have a credit file. This credit file may be checked for black marks or recent enquiries.
  • The trust deed - Lenders check this deed to confirm who the actual beneficiaries and the trustees are. This allows them to ascertain the power of the trustee to apply for the trust loan.
  • The beneficiaries - Some lenders may require all the adult beneficiaries to be guarantors. This requirement varies from lender to lender.
Lenders may require several documents in order to process a loan for a trust. They will particularly need:
  • A certified copy of the stamped trust deed.
  • A certified copy of the company constitution if there is a company trustee.
  • Documents of identification for all trustees, directors of trustees and beneficiaries of the trust.
  • Tax returns and notices of assessment of the trust, this requirement may be waived for low doc loans or new trusts.
Cheers,
Otto

Re: How do banks assess trust applications?

Posted: Mon Sep 29, 2014 5:20 pm
by arnie
I have friends who are trustees of different types of trusts. They are also interested in getting a trust loan but are not sure if their applications will be approved. Can you provide me with a list of the types of trusts that are allowed to borrow money?

Re: How do banks assess trust applications?

Posted: Tue Sep 30, 2014 8:41 am
by Otto Dargan
Hi arnie,

Although lenders in Australia tend to view trust loans as extra work due to their complexity and additional paperwork, many types of trusts are allowed to borrow money.

The following is a list of the most common types of trusts that may be allowed to borrow:
  • Discretionary trusts
  • Unit trusts
  • Hybrid trusts
  • Family trusts
  • Property investment trusts
  • Self-Managed Superannuation Funds (SMSF)
Only a select few lenders may approve trust loan applications from the above trusts although all of them may be allowed to apply.

You can find a comprehensive guide on trust loans on our website. To learn more, you can also call us directly on 1300 889 743 or fill your details in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto

Re: How do banks assess trust applications?

Posted: Tue Sep 30, 2014 12:00 pm
by arnie
I was having a tough time finding reliable information but your website makes it quite simple. I plan on calling you and have suggested my friends to do that as well. Thanks for the info.

Have a good day :)

Re: How do banks assess trust applications?

Posted: Thu Nov 27, 2014 2:01 pm
by gleeson
Hello.

I tried to get a home loan using a unit trust but my application was not approved. Why do unit trust loans seem to be more difficult to get approved? The bank suggested me to apply for a low doc loan instead. I do not understand why this suggestion was made. I would really appreciate a quick reply on this. Thanks in advance.

Re: How do banks assess trust applications?

Posted: Thu Nov 27, 2014 3:14 pm
by Otto Dargan
Hi gleeson,

Although lenders accept applications for home loans from many types of trusts, unit trust loans are more difficult to get approved.

Many lenders may lend to discretionary trusts. However, they reject many applications for unit trusts. This may be due to:
  • The complexity of the unit trust deed.
  • The absence of computer systems that are set up to process unit trust loans.
  • The additional effort and paperwork for unit trust loans.
You were most likely suggested a low doc loan because you were not able to prove your true income. Some possible reasons may be due to:
  • The absence of up to date tax returns.
  • Increase in your income since your last tax return.
  • Inclusion of large deductions such as depreciation, which are not a real expense.
  • A very complex company structure.
You can have a look at our website to get more information on this.

Cheers,
Otto

Re: How do banks assess trust applications?

Posted: Thu Nov 27, 2014 8:55 pm
by gleeson
Thanks, Otto. A low doc loan does not sound too bad to me. I think I will need your help on this so I will call you within this week.