SMSF home loans are loans you can obtain using your Self-Managed Superannuation Fund to purchase investment properties. The incomes that will be generated through your SMSF property loans will be returned to the fund.
This scheme is designed to boost your future retirement benefits rather than as a way to cover whatever financial obligations you have at the present.
Thus, property investment within superannuation is not similar to investing outside the SMSF environment. All SMSF property investments abide by the laws that these organizations have set for borrowing.
How Does SMSF Borrowing Work?
In this scheme, the role you play is a SMSF trustee trying to secure financial backing from the fund. Once you have identified the acquirable asset that you wish to purchase, you have a couple of options for where to take out a loan:
- Commercial provider – Some mortgage providers and banks have loans specifically tailored for SMSF property borrowers
- Non-bank lender – Another option is to borrow from a private lender, provided the arrangement between you and the lender is on arm’s length basis
Some lenders require insurance to be included via a loan. If this is required on the asset that you will be purchasing, make sure that your SMSF account has sufficient funds to cover insurance premiums.
How Much Can Your SMSF Borrow for Property?
These loans generally allow up to 30-year terms and up to 70% leverage. If you plan to use interest-only repayments, the time period allowed for that is only up to 5 years.
Generally, the minimum amount borrowers receive is $100,000 without any limit for maximum amounts. However, these figures are subject to the borrowing capacity of the SMSF account and the lender’s discretion.
Your lender will also factor in the following:
- Deposit which is usually at least 30% of the value of the property
- Rental income – your ability to make repayments
- The pattern of contributions – your consistency and frequency in making contributions to the fund
- SMSF structure – your SMSF must be ASIC and ATO compliant