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Trust Loans: Borrowing With A Trust

Many people often use a trust to purchase their investment properties because of the asset protection and tax advantages offered by trusts.

Unfortunately, most lenders don’t know how to structure trust loans correctly which can result in the borrower missing out on these tax advantages.

Our popular articles on borrowing with a trust

What do banks look for?

When a lender receives a trust application they will carry out a full credit assessment to decide if they should approve the loan.

When assessing the loan they tend to look for:

  • The type of trust: Trusts are assessed in many different ways. Some banks prefer discretionary or family trusts while others are happy with hybrid, property investor and self-managed superannuation fund (SMSF) trusts.
  • The trust credit file: The directors and beneficiaries of a trust have credit files but did you know that trustee companies and, in some cases, trusts have a credit file as well? The banks check the file for applications to other banks and for any blemishes.
  • The trust deed: The trust deed confirms who the beneficiaries and the trustee actually are. The deed will be checked to make sure that the trustee has the power to apply for loans for the trust.
  • The loan structure: Many people choose to have the loan in the name of the trustee or director of the trustee company rather than in the name of the trust. In other words, the director of the trustee company is the borrower while the trust is the mortgagor. This is done to take advantage of negative gearing benefits when using a unit or hybrid trust.
  • The beneficiaries: Did you know that some lenders require all adult beneficiaries to be guarantors? Most trusts have two, three or more beneficiaries and these structures can make it difficult to borrow money.

We know what the banks look for when it comes to trusts!

Please call us on 1300 889 743 or complete our free assessment form to speak with one of our broker today!

What additional documents do the banks need?

There are several documents that the bank will need from you in order to process a loan for a trust.

In particular, they will need:

  • A certified copy of the stamped trust deed.
  • A certified copy of the company constitution (if there’s a company trustee).
  • Identification for all trustees, directors of trustees and beneficiaries of the trust.
  • Tax returns and notices of assessment for the trust (not always required, in particular for low doc or for new trusts).

Please talk to us on 1300 889 743 or fill in our free assessment form for a specific list of required documents.

Is it possible for trusts to get discounted loans?

Yes! The secret to getting your loan approved is to know which lender can work with your particular type of trust and your proposed loan amount.

It’s important to make sure that the lender processes your loan as a residential loan and not a commercial loan, otherwise you’ll pay more fees and a higher rate.

In addition to this, many lenders cannot approve residential loans for trusts at all, which leaves many people wondering how they will be able to buy an investment property in a trust.

What trust types can borrow money?

The most common types of trusts used for the purpose of property investment are:

Although all of the above trusts can apply for home loans, there are only a few select lenders that will approve them.

Generally, hybrid trusts and trusts with company / corporate trustees tend to be more difficult to finance.

We have all the answers that will help to make your mortgage application as smooth as possible!

Please fill in our free assessment form or call us on 1300 889 743 to discuss your situation with one of our mortgage brokers.

How do lenders view trusts?

Banks and other lenders in Australia tend to view trusts as extra work for them without any extra reward.

Trust applications are very complex, often with legal issues to consider, as well as more extensive paperwork to complete before approving the loan.

The majority of bank managers, mortgage brokers and credit staff don’t understand how trusts work so trust applications tend to get bounced between bank departments, resulting in delays and errors.

On top of this, many bank managers don’t actually know if their own bank does trust loans as many banks have ambiguous credit policies.

One of Australia’s major banks in particular can’t lend residential loans for trusts simply because their computer system can’t handle them!

We are mortgage brokers that specialise in financing loans for trusts.

Please contact us on 1300 889 743 or complete our free assessment form to find out which lenders will allow you to borrow for your trust.

Why doesn't every bank lend to trusts?

Many banks believe that loans to some types of trusts could be legally unenforceable in the event that the borrower can’t repay the loan.

Furthermore, many lenders are worried that the Australian Taxation Office (ATO) may change taxation rulings about trusts, which in turn will affect the people they have lent money to.

The main reason that most lenders don’t lend to trusts is because trust loans are less profitable to them as a result to extra work of preparing mortgage documents and the checking of the trust deed.

How do banks get around these problems?

The major banks tend to refer many enquiries about borrowing using a trust to their business banking department.

This works well for the bank as more experienced staff handle the loan. However, the customer is often charged a higher rate and more fees, making it more expensive to get their loan approved.

Business banking is slow, expensive, may not include a low doc option and tends to allow you to borrow far less than you can with a residential loan.

We know lenders with lower fees and competitive rates!

Please call us on 1300 889 743 or complete our free assessment form today!

Do lenders charge additional fees for trust loans?

Yes, all lenders will charge additional fees for lending money to a trust.

This is reasonable because there’s additional work to be completed in preparing the guarantee and indemnity documents for the trustee and the beneficiaries (if applicable) to sign.

In most cases, the additional legal fees charged by the bank are between $200 and $500.

Can the loan be in my name?

Yes, it’s possible to setup the loan to be in the name of the trustee or director of the trustee instead of being in the trust name.

For example, if John Smith is the director of ABC Pty Ltd, the trustee for The Smith Unit Trust, then the loan could be set up in two ways:

  • Borrower: ABC Pty Ltd As Trustee For The Smith Unit Trust
    Mortgagor / property owner: ABC Pty Ltd As Trustee For The Smith Unit Trust
    Guarantor: John Smith
  • Borrower: John Smith
    Mortgagor / property owner: ABC Pty Ltd As Trustee For The Smith Unit Trust
    Guarantor: ABC Pty Ltd As Trustee For The Smith Unit Trust

Note that some banks don’t accept the second loan structure listed above.

Please talk to your accountant for tax advice regarding the different structures.

Fill in our free assessment form or call one of our brokers on 1300 889 743 to find out which lenders can help with your proposed loan structure.

Can I sell my property to my trust?

Yes, you can sell your current investment property to your own trust.

However, you may be required to pay stamp duty on the transfer as well as capital gains tax on any capital gain you have made since purchasing your investment property.

Are there low doc loans for trusts?

Yes, it’s possible to get approval for a low doc trust loan.

A low doc loan will allow you to declare your income rather than providing tax returns as proof of your income.

There are only a few select lenders that can consider low doc loans for trusts so it’s critical that you talk to us on 1300 889 743 or complete our free assessment form before you apply for a low doc loan using a trust.

What is a trust?

A trust is an arrangement which allows a person or company to own assets on behalf of another person, family or group of people. These people are known as the beneficiaries of the trust.

Assets are owned on behalf of beneficiaries but controlled by a trustee, who can be either a company or a person.

The trustee is governed by a trust deed which sets out the rules that the trustee must follow and also covers how profit is distributed to the beneficiaries.

Benefits of buying property in a trust name

Tax benefits

You may be able to reduce your tax bill by distributing income to family members with lower taxable income.

Asset protection

Trusts allow you to control and receive income from assets without having them in your name.

This may protect these assets in the event that you’re sued or you go through a divorce.

Estate planning

Some trusts may allow you to effectively pass assets on to future generations without paying excessive taxes or going through estate disputes.

Check out the trust information page for tips on investing using a trust.

Drawbacks of buying property in a trust name

No negative gearing

Well, you’ll see no immediate tax benefit at least.

In saying, you may be able to carry forward any losses you make from owning and managing the property and offset them again future profits.

A common strategy is to buy your first few investment properties in your own name in order to build up good equity and claim these negative gearing benefits from the Australian Taxation Office (ATO).

Later, you can swith ownership to a trust structure.

It’s essential you speak to your accountant before committing to an investment strategy.

Accounting fees are higher

Set-up costs and annual accounting fees can be higher when owning a property in a trust due to the added complexity of tax returns.

Mortgage structure is critical

This isn’t a drawback as much as it is a huge risk to be aware of.

Using a mortgage broker that has experience with trust loans will help you to get approved for finance that works for you.

They can also help you to “spread your risk” so your investment plans don’t breach mortgage exposure limits.

Apply for a loan in a trust!

Borrowing with a trust is possible!

At Home Loan Experts, we assist you in making sure all aspects of your trust loan are perfect for maximum returns on your investments.

We know how a trust works and which lenders accept which kinds of trusts.

Please fill in our free assessment form or contact us on 1300 889 743 to speak to a mortgage broker who specialises in helping people to borrow money for their trust.

  • Murray

    Hey, I am looking to setup a trust to buy a property. I am just wondering how much is required to start it off?

  • Hello Murray,

    Unfortunately we cannot advise regarding setup of your SMSF, you might need to check with your accountant for further details or discuss more with our mortgage broker.

  • Alexis

    I want to borrow using my SMSF as I don’t have much deposit in my personal savings account. I have $100k in my superannuation funds and I would like to know how much I could borrow with that. Could anyone here guide me in this matter?

  • Hi Alexis, you can try our SMSF borrowing power calculator to find out how much you can borrow. Or you can discuss your specific situation and loan needs with one of our SMSF loan specialists by calling 1300 889 743.

  • Baddeley

    Our family trust runs my wife’s restaurant where she’s both the trustee and the beneficiary. We’re currently living in the commercial property we’re working in and we’d like to buy it now. Can you help?

  • Hey Baddeley,

    We’ll need more info from you regarding your situation and loan needs such as your deposit, the commercial property details as well as trust details and also regarding if your accountant may advise you to set up a new entity to buy the property. Please call us on 1300 889 743 to discuss all this with an expert commercial mortgage broker or simply complete our free online assessment form and we will contact you within 24 hours:
    https://www.homeloanexperts.com.au/free-quote/

  • Ameliaa

    I want to use my service trust to purchase a house. Is this possible or do banks only accept unit, discretionary and family trusts?

  • Hi Ameliaa,

    Service trust home loans are accepted, however, there are only a few select lenders that will approve them. Generally, hybrid trusts and trusts with company / corporate trustees tend to be more difficult to finance so if your service trust is similar to those then it can be difficult.

  • Oni

    Hi, what can I use to check my individual borrowing power?

  • Hey Oni,

    You can check your borrowing power using this serviceability calculator, which combines the exact method used by three banks in their own assessments:
    https://www.homeloanexperts.com.au/how-much-can-i-borrow/

  • Pennington

    How can I prove my income if I want to go for a low doc trust loan?

  • Hello Pennington,

    The main documents that can be used to verify your income for a low doc loan are:
    – 12 months’ BAS statements showing a high turnover.
    – An accountant’s letter verifying your income.
    – Business bank statements showing a high turnover.
    – Old tax returns (over 24 months).
    – Interim financial statements.

    If you can’t provide one of these documents then it is unlikely that you can get approval for a low doc loan.

  • Andreas

    Can you move a property that is security for another family members property into a trust? If so, what are the consequences?

  • Hi Andreas,
    Do you mean that you own a property that is used as security for a loan that is used by a family member and you would like to transfer this into your trust?
    Yes you can do this however it is complicated.
    – You may pay Capital Gains Tax and Stamp Duty. Please seek the advice of an accountant / tax professional.
    – The home loan would need to be refinanced. Note that many lenders would not allow a guarantee from a trust. We have done this once or twice before but it was very difficult.
    Overall I wouldn’t recommend this. It’s best to remove the guarantee (i.e. refinance) and then you can move the property easily https://www.homeloanexperts.com.au/guarantor-home-loans/removing-a-guarantor-guarantee/

  • Dan Hendrex

    i wont to borrow money from a bank using the house i own that is in trust under my name

  • Hi Dan,
    Yes if your trust owns the house then it can borrow on the trust and then lend this to you. You should make sure that is in line with the trust deed and seek advice from an accountant before you do that.
    If you own the house and want to borrow in the name of your trust then we can do that as well.

  • JoaneY

    Say individuals and a SMSF are under a unit trust. Individual being the trustee and will apply for the loan. Is it acceptable if the SMSF fund the downpayment?

  • Hi JoaneY
    This structure is very complex and can only be assessed on a case by case basis. We would need the trust deed and full documents for everything to work out if we can help with finance. Sometimes we can and sometimes the structure doesn’t allow it. For this type of loan application we have a minimum loan size of $500,000 due to the complexity of the loan and the expertise required to approve it.

  • JoaneY

    Thank you, HLE. The min loan amount is informative. The trust has not been set yet. Will seek further advice aft talking to my accountant the year end.