SMSF Property Loans
Lending for an investment property through your SMSF is another way to get into the market with the money you’ve received in Super Guarantee Contributions. Concessional (pre-tax income) and Non-Concessional (post-tax income) Super Contributions can be considered in finance applications however there are added criteria which dictate what can be accepted for a SMSF finance application.
With a SMSF loan, you can purchase an residential investment property or a commercial investment property, however there is strict legislation around the property you can purchase and the use of that property (e.g. you cannot purchase a residential property to live in, however you can purchase a commercial property and lease it for your own business operations).
Before you proceed to register a SMSF, apply for a loan and go to market, it’s highly recommended that professional advice is sought for a SMSF loan purchase strategy. The Australian Taxation Office (ATO) has some information available to assist with self education including helpful simple videos to explain some of the basics. For more information on SMSF Loans, click here.
There are some main stream lenders who will only lend when your SMSF balance is $200,000 or more, then there are less common lenders who will provide finance when your SMSF balance is at $150,000.
The lenders who will consider a SMSF loan have different policies and requirements to that of residential lending which must be met before a loan application would be approved, hence it’s vital that you work with an experienced mortgage advisor to prepare an application for the lender based on your scenario. Depending on the property type, location, purpose, etc. the LVR (Loan to Value Ratio) limit will vary, the most common lending range is 60%-70% LVR (e.g. if the proposed purchase is valued at $500,000, at a 70% LVR amount the lender would finance $350,000 and the Super Fund would have to have the balance plus costs to cover the shortfall).
There can be other requirements depending on policy and the lender at the time. For example the lender may require 10% liquidity in the Super Fund after the transaction so there is some buffer (e.g. for a $500,000 purchase the Super Fund may need to have $50,000 account balance to satisfy the lenders policy).
Due to the complexity of policy and the various scenarios of different lenders, it’s essential that an applicant speaks with a professional Mortgage Advisor to obtain correct information.
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