Self Managed Super Fund Home Loan: What you need to know
A self managed super fund home loan can be used to buy property through your self managed super fund and give your super balance the benefit of property growth.
This article will help you find out how self managed super fund home loans and how they can be used to purchase property and secure your retirement.
The self managed super fund (SMSF) home loan is to borrow money for the purchase of a residential or commercial property.
At Urban Money we offer SMSF home loan solutions that include interest-only repayments for up to 10 years. We can also assist with preparation of the property trust and give you an insight as to how the whole process works.
Rules around buying property in your SMSF
The best place to start when thinking about buying a property in your super fund is the ASIC website. The Australian Securities and Investments Commission (ASIC) have clear rules when considering the purchase of a property in your SMSF.
- Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members.
- Must not be acquired from a related party of a member.
- Must not be lived in by a fund member or any fund members’ related parties.
- Must not be rented by a fund member or any fund members’ related parties.
However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate. (Reference from ASIC)
It is important to remember that although purchasing a property in your SMSF offers a number of tax benefits for your super fund, there are also a number of fees and charges that can reduce your super balance.
Costs of a Self Managed Super Fund Home Loan
Some of the costs associated with an SMSF home loan include:
- Upfront fees
- Legal fees
- Advice fees
- Stamp duty
- Ongoing property management fees
- Bank fees
It is important you weigh up the benefits and costs associated with getting a SMSF home loan. That is why we insist on our customers obtaining independent financial and legal advice before your proceed.
SMSF home loans are more complex
It is important to remember applying for a SMSF home loan is far more complex compared to a standard home loan.
Generally speaking, you’ll find that it might take you about a week or longer to gather the paperwork you need for the application. Your lender will also need at least another week to 10 days to evaluate and accept the pre-approval application.
The current Australian law means you are generally only permitted to purchase an asset with your SMSF using a ‘limited recourse borrowing arrangement’ (LRBA). This means if you default on your loan, the lender cannot seize any of the other assets in your self managed super fund – only the asset that is the object of the loan.
The nature of this type of loan also means you need to consider a lower LVR (loan to value ratio), so you may not be able to borrow as much as you like, as well as a higher interest rate compared to a standard home loan.
Urban Money Lending Manager Geoff Wilson says, “Getting a self managed super fund home loan is not for everybody, and we seriously encourage our customers to seek independent financial and legal advice before they start the process. SMSF home loans are complicated, and the set-up and ongoing cost are generally more complex than a standard home loan. The upside is good property can provide a solid capital gain and security as people transition into their retirement.”
“At Urban Money we are experienced in providing self managed super fund home loan product solutions and have an in depth knowledge of what is required to gain an approval for this type of product, making it easier and far less stressful for our customers,” Geoff adds.
At Urban Money our customers have the choice of from our own SMSF home loan or those offered by other lenders including major banks and non bank lenders. It is important to note not all of the large lenders offer a SMSF home loan option.
If you are thinking about buying a property in your self managed superannuation fund contact to us today.