Ten Steps To Settlement

Approval to settlement

Are you looking to apply for a Self Managed Super Fund loan?

We often get enquiries from people who are confused about the approval and settlement process.

This is because a SMSF loan is not like a standard loan and involves many parties.

To help make it easier for you, we have put together a list of tips that will help guide you through the process. Please read on to find out more.

1. Can your SMSF borrow?

The structure of your SMSF is one of the first things that the banks will look at.

They will generally look to see whether it is in conformity with their lending policy.

You may have already set up a SMSF trust and bare trust but the lender may request that changes be made, making it a time consuming and expensive process.

Therefore, we suggest that you obtain an indicative approval before applying for a loan.

This will enable you to determine your borrowing position, without incurring any unnecessary added costs.

2. Review/set-up the SMSF

Do you already have a SMSF structure in place? It is essential to ensure that your trust deed complies with all legislative and regulatory requirements, including the ‘sole purpose test’.

This means that any funds belonging to the SMSF must be for the sole purpose of benefiting members upon retirement.

Without a proper SMSF structure, most banks will decline your loan outright.

Your SMSF will not be able to borrow if it is not set up properly.

3. Assess your investment strategy

The SMSF trustee has the duty of aligning any investment decisions with the overall investment strategy of the SMSF.

Consider which investment options will best suit the needs of the fund.

This will make it easier for your SMSF to purchase a property that complies with your strategy, as well as any other legislative requirements.

4. Arrange the Security Trust Deed

The Security Trust Deed and the Security Trustee are both very important.

The Security Trust Deed needs to be prepared in a way that minimises any taxation issues such as G.S.T and stamp duty.

The Security Trustee or bare trust must be a third party such as a company, that is separate to the SMSF.

This is because any asset owned by the SMSF must be held on trust.

The Security Trustee will be the purchaser of the property, holding it on trust for the benefit of your SMSF.

Some banks use their own Security Custodian to hold the property until it is paid off.

For this reason, it is recommended that you select a property to purchase and then set up the bare trust.

Need help with your SMSF? Whether it is financial, taxation or borrowing advice, we can help! Please enquire online today to speak to our expert team!

5. Choose your property

Before entering into a contract of sale it is important to consider whether you want to purchase an investment property or a property to live in.

If you are buying residential property this must be selected and ready for purchase, so that the bare trust can be established and entered into as the purchaser on the contract.

If you are buying commercial property, some banks allow you to take out the loan prior to selecting the property.

Once you have selected the property, it can then be bought in the name of your bare trust.

6. Get the right advice

The structure of your SMSF, the Security Trustee and the entire lending arrangement needs to be carefully assessed by someone who has the expert knowledge to ensure that it complies with regulation and offers you maximum tax breaks.

Please enquire online to get in touch with our team who can give you the right accounting, taxation and finance advice to ensure that your SMSF helps you achieve your investment dreams.

7. Loan approval

Generally, most banks will looks at your Trust Deeds, SMSF and bare trust, before deciding whether to approve your loan.

The property that you select will be subject to valuation and you will be required to supply the lender with the contract of sale.

For more information on SMSF lending criteria and loan approval, please enquire online today and our specialist mortgage brokers will help you with your mortgage application.

8. Contracts

Once you have selected the property and received loan approval, it is now time to exchange contracts.

The vendor of the property enters into the contract of sale with the Security Trustee, as the purchaser. The Security Trustee buys the property, but holds it on trust, for the SMSF who is the beneficiary.

However, the SMSF pays the deposit directly, not through the Security Trustee.

9. Loan documents

In most cases, the loan documents will be sent from the bank to the SMSF, to be signed and returned.

The documents will be the same as those for a standard loan, with the exception of the limited recourse borrowing arrangement.

This arrangement limits the lenders recovery to the asset that is security for the loan, in the event that the SMSF defaults.

The personal assets of the members are thereby protected and they will avoid liability for any defaults of the SMSF.

10. Settlement

Congratulations! Your SMSF now owns a property! The lender will take possession of the title deed and the transfer will be registered.

How we can help?

If you need help setting up a SMSF, borrowing with a SMSF or obtaining tax advice, please speak to us.

Our expert team can help you ensure that your SMSF is capable of borrowing so that you can carry out your funds investment strategy.

Enquire online or call us today to get in touch with our specialists.

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.