The lending options for low-doc SMSF loans are very limited currently.
How does it work?
Even though you might be earning a great income and have a strong credit history, your self-managed superannuation fund (SMSF) balance or trust income may not be enough to borrow the amount you need for your SMSF loan.
That’s because many banks look at your servicing or borrowing power in the context of your super fund alone. Luckily, an SMSF low doc loan can help you qualify for a mortgage.
By using alternative income evidence, such as an accountant’s letter, some lenders will approve your application.
How much can I borrow?
By choosing the right lender:
- Borrow up to 70% of the property value for a residential property or commercial property.
- Buy owner-occupied business premises.
- Loan term: 30 years just like a standard residential home loan or 15 years for a commercial property
- Interest-only: 5 years
- Last 12 month SMSF financials: Most lenders actually require two years financials. One of our lenders will also accept new SMSF funds as long as you can provide financials of the retail or industry super fund that you’re rolling over.
- Interest rate: You’ll be charged a margin or risk fee on top of the standard variable for the lender, but we can negotiate strongly on your behalf to get you the sharpest rate possible.
Please call us on 1300 889 743 or fill in our free assessment form to speak to a mortgage broker that specialises in SMSF loans.
What do most banks think?
Banks will usually want to see your SMSF’s last two years trust tax returns to determine whether the balance, along with proposed rental income, is enough for you to afford the loan.
Some lenders will accept 80% of this proposed rental income when calculating your borrowing power while others will accept 100%.
There are also some lenders that will use the income of members or beneficiaries of the SMSF to support the application if a personal guarantee is provided.
The problem is that if the government’s superannuation guarantee (GSG), your personal salary sacrifice (voluntary contributions), proposed rental income and other income earned from assets already within the superfund (such as dividend income) aren’t enough to meet the bank’s serviceability requirements, you’ll be declined for an SMSF loan.
Most banks aren’t very good with SMSF policy because their lending policies are still quite fresh. Luckily, we have nearly 40 lenders on our panel, including credit unions and building societies, that are much more flexible.
How will an SMSF low doc loan help me?
The great thing about an SMSF low doc loan is that there are a couple of lenders that will look at your own personal financial situation, not just your trust income, to determine whether you have the capacity to afford the mortgage.
If you’re PAYG, you’ll need your two most recent payslips showing your year to date income.
Self-employed borrowers can simply provide an accountant’s letter declaring their income position.
Call us on 1300 889 743 or complete our free assessment form to speak with one of specialist mortgage brokers. We can let you know if you qualify for an SMSF low doc loan!
What other alt docs can I provide?
There is a range of alternative income verification that you can provide to qualify for an SMSF low loan including:
- Your last year’s financial statements (profit & loss and balance sheet).
- Your last years’ business tax returns.
- Your last years’ personal tax returns.
- Your last years’ notices of assessment.
- Old tax returns.
- Income from your last job.
Simply call us on 1300 889 743 or complete our free assessment form and let us know what documents you have to work with.
Will a low doc option affect the terms of limited recourse?
SMSF loans are approved under a limited recourse borrowing arrangement (LRBA) meaning that in the event that you default on your mortgage, the bank can only sell the property you purchase to recoup their losses and not any other assets in the SMSF.
The good news is that even though you’re going down the low doc path, the terms of the LRBA remain meaning the other assets in your trust are protected in the event that you default.
Tips on buying business premises
If you’re a business owner and you have an SMSF, then there may be a tax, capital or investment benefit for you to sell your commercial premises to your SMSF.
It’s against the law to sell a residential property to your own SMSF; however, there are no such restrictions with commercial properties.
Some lenders will favour this type of transaction as opposed to the simple purchase of a commercial investment property within your SMSF.
Get financial advice from your accountant before you decide to sell your business premises to your SMSF. There are complex Capital Gains Tax (CGT) and SMSF legislation implications that need to be considered, not to mention your own personal financial circumstances.
Are there restrictions with SMSF loans?
There are restrictions on SMSF loans which prevent some transactions from taking place. For example:
- Construction loans aren’t available for purposes of buying vacant land and building on that land.
- Refinances of existing SMSF loans may not be available (one of our lenders now offers refinances).
- Buying a property in your SMSF that you intend to live in (owner-occupied business premises are acceptable).
- Selling a residential property to your SMSF, that you or a related party owns (commercial property is acceptable).
- We are not accepting applications for SMSF loans where the fund has less than $300,000 in assets.
Do you qualify for an SMSF low doc loan?
If your SMSF trust income doesn’t show the full picture of your borrowing power, an SMSF low doc loan can allow you to borrow the amount you need to invest for your retirement.
Call us on 1300 889 743 or complete our free assessment form today.