A self managed super fund (SMSF) can be a great way to save for retirement. And, if you’re in the position to do so, you may be able to use your SMSF to buy property. However, there are a few things you should know before you take out a mortgage on a property held in your SMSF.
Here are four things to keep in mind.
1. You’ll need to meet different lending criteria to personal home loan lending. Just because you have an SMSF doesn’t mean you’ll automatically qualify for a mortgage. You’ll still need to meet standard lending criteria, which include having a good credit history and being able to prove the SMSF has sufficient income to meet the loan repayment requirements.
2. SMSF lending is separate from your personal home loan lending and you can’t mix the two or cross-subsidise one with the other. While this may sound like a disadvantage it actually helps by ensuring your personal and SMSF lending are considered on their own merits only.
3. Be prepared for higher interest rates and fees. Interest rates on SMSF mortgages are typically higher than those for standard mortgages, so it’s important to factor that into your calculations when budgeting for your purchase. That being said, the premium being charged for SMSF loans is reducing. Fees for SMSF lending are also higher than personal home loan lending. This is due to SMSF lending being more highly regulated by the government.
4. Get expert advice. Because of the complexity of SMSFs, it’s important to seek expert advice before taking out an SMSF mortgage. This will help ensure that you understand all of the risks and implications involved in using your SMSF to purchase the property.
If you’re thinking about using your SMSF to purchase property, there are a few things you need to know first. Make sure you understand the lending criteria and are prepared for higher interest rates. And, most importantly, get expert advice before making any decisions. By following these simple tips, you’ll be on your way to making a smart investment with your SMSF.
A qualified mortgage broker (like me!) can help you stay compliant and minimise your costs and risks in the future.
Curious about your own SMSF lending capacity and want a confidential chat? Book an obligation-free chat with me here.
