Can someone help me with some info about getting a loan in your SMSF?
• Is 80% LVR allowable
• Does the deposit have to be just pre-existing super or can you put your own cash in?
• Also can you use equity in your current house towards the deposit/new home?
• How is affordability calculated? Is it the amount you put in super each month, and is that tweakable? Ie is it rent + super contribution??
Any help would be welcome please!
• Is 80% LVR allowable - Yes, most banks that offer SMSF loans will allow 80% LVR for residential property. For commercial it’s 65% LVR..
• Does the deposit have to be just pre-existing super or can you put your own cash in? You can lend money to your super fund or make a lump sum contribution. Be careful not to breach your contribution cap. If you loan money to the superfund, it does not count as a contribution.
• Also can you use equity in your current house towards the deposit/new home? - I have seen scenarios where this has occurred, but it has to be a loan from the owner of the home to the Self Managed Super Fund. Again, it's important to remember not to breach your contribution cap. If you loan money to the superfund, it does not count as a contribution.
• How is affordability calculated? Is it the amount you put in super each month, and is that tweakable? Ie is it rent + super contribution?? Affordability is calculated through the rental return and super contributions, in some cases some banks will take into account the extra ability to make contributions to your fund from your personal income and also the existing returns/performance from your existing fund. Each lender has their own formula to calculate if your superfund can “afford” the property. The formula is usually something along the following lines:
- Calculate the annual interest payment (loan amount x interest rate). Multiply that figure by 1.5
- Calculate the expected annual rental income figure – and calculate 80%
- Calculate the expected annual super contributions (salary X 9.25% plus salary sacrifice). Take 90%.
- Add up your 80% rent figure and your 90% super figure. As long as this equal or more to your 1.5 times interest figure, then according to the bank’s criteria, your superfund can “afford” the property. If this calculation does not work out, then the bank will lend you less than the full 80% LVR.
In addition: When you buy a property in your superfund with a mortgage (and possibly an additional related parity loan), it is important that the correct structures have been set up. You need a superfund with a corporate trustee – if your superfund currently has individual trustees we4 need to change this. You then also need a separate corporate custodian trustee, and then a holding trust.
It is very important that the structures are in place BEFORE you sign a contract to purchase a property.
It is also important that you make any contract “subject to finance”. That way, if your superfund can’t get the mortgage you can back away from the deal.
Last but not least, a superfund property purchase takes a bit longer. Therefore always allow 28 days for finance and another 28 days between finance date and settlement.
Rebekah Blake and Gina Davidson