If you have a bad credit file you may still be able to borrow for your self-managed superannuation fund (SMSF) with an SMSF bad credit loan.
There are only a few lenders in Australia that offer bad credit solutions for borrowers who have incurred defaults, judgments, court writs or have been discharged bankrupt.
Providing good reasons and strong evidence for getting an adverse listing is the key to approval.
Your mortgage broker can help you build a strong case.
How much can I borrow?
Depending on your level of credit impairment and how well we package your SMSF loan application, you may qualify for the following with a specialist lender:
- Buy a residential property: Borrow up to 80% of the property value.
- Buy a commercial property: Borrow up to 70% of the property value.
- Refinance: We usually make a plan with our clients to remain with the specialist for a couple of years or until the bad credit listings have cleared, after which, we can refinance you to a major lender at a better interest rate.
- Unlimited defaults and judgments: One of our lenders will consider a number of different bad credit listings as long as they can be attributed to a maximum of two life events.
- Good financial position: You need to have a good deposit, stable income and a solid debt-to-income position and prove that you’re now in a better situation.
So whether you’ve lost your job, your business had a bad year or you or your partner suffered illness and injury that prevented you from working, an SMSF bad credit loan can allow you to continue to invest.
Please call us on 1300 889 743 or fill in our free assessment form to speak with one of our experienced mortgage brokers about your situation.
What do most lenders think?
Major banks and lenders will not consider SMSF borrowers that have bad credit.
SMSF lending is still relatively new and lending policies are not very flexible, even with the skills of a specialist mortgage broker.
Bank are mostly concerned with the trust income of your super fund and whether there is enough liquidity in the fund for you to afford the mortgage, which you can read more about on the SMSF loan page.
However, they will also take into account your asset-to-liability position as well as your credit history since you are the trustee making the guarantee.
Luckily, there are at least one or two specialist lenders that will consider adverse listings on a “rate for risk” basis.
That means that your interest rate will be slightly higher to due to higher risk but, again, you’ll only be with the specialist lender until your credit file clears and you’re in a better financial position.
Most lenders won’t actually refinance an SMSF bad credit but there a couple of major banks that will.
How do I build a strong case?
The specialist lender will look at your bad credit history on the basis of “life events”.
A life event could be anything from being made redundant, getting divorced, business failure or even the death of loved one who contributing to the household income.
Australians in these situations may soon find themselves defaulting on their home loan, missing payments on bills like electricity, gas and telco, or even having to declare bankruptcy or enter into a part 9 agreement.
The trick to getting approved for an SMSF bad credit loan is providing evidence that blemishes that you incurred on your credit were due to one, or a maximum of two, life events.
To prove this, the lender will want to know:
- How much the defaults were for,
- When they occurred,
- Whether they’re now paid or unpaid, and
- How long since you incurred a bad credit listing and how you’ve moved past the life event.
Provide as much evidence as you can, such as a plan that you’ve made with your accountant or financial adviser to once again put yourself on the path to financial stability.
All bad credit listings will be considered on a case by case basis so why not call 1300 889 743 or fill in our online enquiry form and talk to us about your circumstances.
Samantha and John own and operate an interior design and landscaping company and are joint trustees in their SMSF.
Business was going great until John was severely injured in a car accident and unable to work in the landscaping business.
With no leading hand and Samantha juggling both sides of the business and unable to keep up with the work schedule, the company began losing contracts.
Having to look after her husband as well, Samantha had to find a PAYG job as a receptionist.
With less income coming in, the couple eventually defaulted on their business loan repayments and their utility bills.
They almost defaulted on their mortgage as well but, luckily, John made a full recovery and returned to work before their lender took legal action.
Around a year had passed since the defaults were listed on their credit file and the business was improving.
Samantha and John decided they wanted to invest in a property for their SMSF but when they went to apply for a loan, they were knocked back.
That’s because the defaults were still on their credit file and would remain there for up to 5 years.
With nowhere else to turn, they spoke with a specialist mortgage broker who was able to find a lender that would consider the couple’s defaults.
Samantha and John were able to provide business financials before and after John’s accident showing that their turnover was strong.
They were also able to provide medical evidence of John’s accident, how long he was unable to work and how Samantha took on a second job to make ends meet.
The story and evidence made sense to the lender and the couple were able to get approved for an SMSF bad credit loan.
Samantha and John were able to buy the property for their SMSF. They will be able to refinance in less than four years to a major lender at a much better interest rate.
What exactly is ‘bad credit’?
- Mortgage arrears: Missed payments on your home loan. The more the number of missed payments you have had in the last six months then the more wary lenders will be. Most banks won’t refinance your loan even if you’ve missed just one repayment!
- Bad credit history: Adverse listings such as defaults, bankruptcy, judgments, court writs or too many credit enquiries on your Equifax (previously Veda Advantage) credit file can make your application doubtful.
- Lender credit history: Your past credit history with the lender you are applying for. Lenders have a very long term memory for the customers that they have had problems with in the past.
- Unpaid bills or tax: Outstanding bills such as council rates or late tax bills are a type of bad credit history that may not initially show up on your credit file but may be visible on the supporting documents you need to provide.
- Company in financial trouble: If you are the director of a company that is in financial trouble, receivership or liquidation then this can affect your personal credit history.
- Overcommitted: If you have too many debts for your income or your total assets are less than your total liabilities then the major banks may assess you as being insolvent or beyond help.
Ask us about an SMSF bad credit loan
We’re credit experts that specialise in helping people in tough situations to qualify for a home loan.
Not all lenders take a common sense approach to bad credit and unfortunate life events but we know some that do.
Please call us on 1300 889 743 or complete our free assessment form today.