SMSF Property Loan Process

The SMSF Property Loan is a loan product which provides self-managed super funds the flexibility to borrow in order to purchase residential investment property, giving direct exposure to real property assets. A key reason people may elect to manage their own superannuation is the flexibility to choose where their money is invested. The Superannuation Industry (Supervision) Act 1993 (SIS Act) allows SMSFs to borrow money to purchase residential investment property.

It’s recommended that you seek independent legal, taxation and financial advice to ensure it is appropriate for your SMSF to borrow money and purchase an investment property. Once you have received this advice, you can begin establishing the trust structures required for the loan, ensuring you comply with the relevant superannuation laws. The loan would then need to be taken out by the SMSF trustee.

In addition you will also need to set up a separate holding trust (also called Bare Trust), which will be the legal owner of the property, and the holding trust trustee . To purchase the property, the SMSF can use the fund it has available in cash and borrow the remaining funds plus other associated costs, using the investment property as security for the loan.

The holding trust becomes the legal owner of the property, while the SMSF is the beneficial owner and receives the rental income. The rent (and/or other income from the SMSF, such as investment income and super contributions) can be used by the SMSF trustee to make the loan repayments.

It’s important to note that the loan is a limited recourse loan. In the event of a default, the lender has recourse to the property security and any additional security provided by the guarantors. The Lender will not have recourse to any other assets held in your SMSF. Once the loan is repaid the legal ownership of the property may be transferred to your SMSF.

At Mortgage Empire, we want to make sure we take the hassle out of the whole SMSF Property loan process. Here are the 15 main steps to loan process. The main difference between SMSF Property loan and other loans are that SMSF Property loan is assessed based on your SMSF income, which is your Superannuation Contribution, Property Rental Income and Other Forms of Incomes that your SMSF generates.

      1. Discuss Your Requirements & Objectives +
      Contact Mortgage Empire Loan Expert to discuss your requirements and objectives. We will explain you various loan options, types, features along with their advantages and disadvantages. During our initial meeting, we will also provide you a copy of our Credit Services Guide.

      2. Complete Factfinder +

      The next step is complete our Factfinder, in which we will complete various information about you such as:

      • SMSF Details & Structure
      • Income
      • Employment
      • Credit history
      • Assets
      • Liabilities
      • Future Plan
      • Expenses
      • Others

      3. Provide Supporting Documents +

      We will request you to provide some or all of the following documents to confirm information provided in the Factfinder:

      • Payslips
      • Last Two Financial Years Superannuation Statements
      • Current and Last Financial Years Superannuation Contribution Evidence
      • Rental Statement or Rental Appraisal
      • PAYG Summary
      • Bank Statements
      • Loan Statements
      • Evidence of Savings
      • Purchase Contract (not required for pre-approval)
      • Driver Licence
      • Passport

      4. Research Loan Options +
      Once you have completed Factfinder and provided all required supporting documents, we will research various loan options for you, which are suitable to meet your objectives, requirements and circumstances. We will outline top three products in our Credit Assessment Statement, which we will provide to you.

      5. Credit Assessment Statement +
      Credit Assessment Statement (CAS) will outline top three products which are suitable to meet your objectives, requirements and circumstances. We will also detail all applicable fees and charges so that you can make an informed decision. In the CAS, we will recommend you the most suitable loan product for your consideration.

      6. Select Loan Product +
      Once you receive a copy of CAS, you need to review it carefully and make your selection. If you agree with the loan product recommended in our CAS, then you will need to return a signed copy of the CAS for your record.

      7. Sign Loan Application +
      Once we receive a signed copy of CAS, we will send the select loan product lender loan application, which you will need to sign and return so that we can apply to the lender.

      8. Apply To Lender +
      Once signed loan application is received, we will apply to the lender and provide them with all supporting documents.

      9. Provide Additional Documents +
      During assessment process, a lender may request for additional information and or documents. We will let you know if this is the case.

      10. Property Valuation +
      Lenders have different requirements and in most case all lenders require valuation of property to be conducted by a valuation firm on their panel. You do not need to worry, we will organise this for you.

      11. Loan Formal Approval +
      Once the lender has assessed your application and it has met all their lending criteria, including satisfactory valuation, your loan will be formally approved.

      12. Sign & Return Loan Documents +
      Mortgage Empire Loan Expert will advise you, when your loan is formally approved. Once your loan is approved, you will receive loan documents, which you need to sign and return to the lender. Mortgage Empire Loan Expert will meet you in person and assist with this.

      13. Home Insurance +
      All lenders require you to have building insurance prior to settlement. Mortgage Empire Loan Expert will advise you the amount for which you will need to insure the property.
      Home insurance is not required, if you are only purchasing vacant land.

      14. Organise For Funds +
      You should organise for funds that you need to contribute at least 2-3 days prior to the settlement day. You should discuss with your solicitor or conveyancer about this.
      Generally, a day of the settlement, your solicitor or conveyancer will provide you with Settlement Advice Statement, which will outline the exact amount that you are required to contribute and method of payment like bank cheques or PEXA account deposit.

      15. Settlement Day +
      Your solicitor or conveyancer will organise for settlement and you are not required to attend. The property becomes yours, once settlement is complete. Your solicitor or conveyancer will advise you and the selling agent of this.