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If you have an SMSF and you’re applying for a loan to finance a property, it pays to have all your ducks lined up to help get your application over the line. Here's how to increase your chances of success.
Blogger: Daniel Jansen, Full Circle Financial Group
Do you have an SMSF? Are you preparing a finance application for your SMSF or in your personal capacity outside of the fund?
If you answered “yes” to at least one of the above questions, you really need to keep reading.
I’m about to tell you all the ins and outs regarding the supporting documentation you need to provide the lender with the application.
What most of you might not know is that some of the documentation you need to provide with the application for an SMSF loan will also need to be provided with an application for a home or investment loan in your personal capacity – even though your SMSF has nothing to do with you buying yourself a new home or investment property. Confusing, isn’t it?
Let’s take one step back and have a look at the documents that are (or may be) required when obtaining finance through your SMSF. This is really important if you are planning to obtain finance yourself, rather than using a specialised mortgage broker (as any broker should be aware of this). Different lenders have different priorities and processes, so by doing your research you’ll get a feel for how best to prepare your paperwork.
There is a bit of psychology involved in the world of finance – if you give the assessor reasons to think for themselves and ask questions, they will often require more and more documentation. In some instances, they will lose confidence in the applicants with disastrous consequences. If your application ticks all boxes, there will be no further questions.
Here’s how to get that large pile of paper right the first time around.
We all know that SMSF loans can be complicated, so it 100 per cent pays off to enclose a cover note. This is where you can really sell your application to the assessor. When the assessor finishes reading the cover note, they will know what the application is all about – what the end goal is, what sort of property has been bought and when it was bought. They will also know the settlement date, the deposit paid and the funds that are available for settlement. If the borrower is a personal trustee or a trustee company, you can also provide ABNs (Australian Business Numbers) and ACNs (Australian Company Numbers) and explain who the guarantors are, if any. I could go on, but you get the point.
When the assessor knows in detail what they can expect, they will go through the actual application form (which is often confusing enough) with confidence.
If you don’t provide a cover note, you can almost guarantee that the application will present as unclear and incomplete to the assessor and they will end up asking questions that need answers. This results in loss of time – and time loss before approval is best avoided.
It is important to fill in as much as you can on the application form – details about the fund’s structure, personal details, income details of the fund, expected rental returns, your personal income details and so on.
Once the assessor has gone through the cover note and the application form, they will have a pretty good idea about whether the lender will approve the loan or not. The supporting documents are basically evidence of what you state in the application.
Super fund trust deed
The trust deed is very important, as this specifies the rules of the super fund and states what the trustee can and can’t do. The lender will need a certified copy of this. Please note that different lenders require different clauses in the deed. Ensure that your accountant or lawyer is aware of this, otherwise you’ll run into major time delays after approval.
Custodian trust deed
A custodian trust needs to be part of the SMSF’s structure if a loan is required in order to acquire the property. The requirements listed for the super fund trust deed also apply here.
Contract of sale
A full copy of the countersigned contract of sale is required.
If possible have an upfront valuation ordered when the property is brand new (this will depend upon your lender/ broker).
The sooner you get this done, the more time you’ll have to prepare and get another valuation done by a different lender if it comes in low. When applying for a loan, it’s important to tackle as many variables as possible to get the desired result as quickly as possible.
On the payslip, the assessor will find the contributions that your employer makes to the super fund. If you salary sacrifice into super, your payslip will show that, too. Usually you are required to provide the two most recent payslips of each individual involved.
This is basically to confirm the annual income you state and is useful when your income has an overtime component. Assessors and lenders prefer the most recent summaries possible (past two years).
Personal tax returns
This is required when you’re self-employed. Documents from the past two years are required. Please ensure you enclose either the notice of assessments or a letter from your accountant confirming that those are the final figures and that the tax return has been lodged correctly.
SMSF tax returns
When available, tax returns are required for the past two years. These give the assessor a very good indication of what the exact income and expenses are of the SMSF, especially when multiple income streams are involved (other investments within the SMSF).
History of super contributions
You need to provide a minimum of 12 months’ history of your superannuation contributions. This can be evidenced by bank statements of the SMSF, or if the SMSF has only been set up recently, 12 months of super statements should suffice.
This is a letter from a real estate agent stating the anticipated rental income for the particular property and is required when the property you bought is not yet rented out. Some lenders require the appraisal to be addressed to you or your super fund specifically, so it would make sense to request that from the real estate agent at all times. In order to get one, you will probably need to provide a floor plan with dimensions.
In most instances the SMSF structure will be set up with corporate trustees for the SMSF trust and the custodian trust. Corporate trustees are companies whose only job is to act on behalf of the trust. They are not involved in trading activities. You and potential partner(s) are director(s) of these companies and you will be registered as such – so when the lender does its routine check-ups, it will notice those companies. The letter from your accountant will confirm that the companies solely act as trustees and are not trading in their own right.
Every lender will eventually ask for this letter, so it makes sense to include it in the supporting documents from the beginning.
Note: when you apply for a home or investment loan in a personal capacity, you will also need to provide this letter.
Financial planner letter
When the income of the SMSF is not sufficient to service the loan, you could decide to make additional contributions through salary sacrificing (this is also tax-effective). Please see your financial planner before making such decisions and ensure this strategy fits your personal financial situation. Please also ensure that the lender of your choice is willing to accept a letter from your financial planner stating that you will make additional contributions and can use this for servicing purposes. Often, a letter like this needs to be accompanied by a statutory declaration in which you also declare this.
These summaries give you an indication of what it takes to gather the supporting documentation in order to secure a bank loan for your SMSF.
The more complete your application is, the less the assessor will have to think and investigate. If they can just tick all the boxes and all the information they need is there, it’s likely to get approved instantly.
If you’re about to lodge an application, good luck, and hopefully this article will have contributed to a fast and quick approval.