Applying for an SMSF loan involves going through several different stages, all of which are necessary to make sure the product is suited to your needs. Any responsible lender will take a number of different precautions before granting you the loan, both for your protection and theirs.
These are the steps you can expect to go through during the SMSF loan approval process.
1. Put your SMSF in place
The first stage is to establish your SMSF, which means assigning a trust deed. This will give the trustee of the superannuation fund the opportunity to borrow money – potentially through an SMSF loan – purchase property and manage the real estate so that the funds can be repaid.
2. Seek loan approval
Before you hand over any money for a deposit, it’s a good idea to gain pre-approval for your SMSF loan. This will give you better financial security in the long run.
3. Establish a bare trust deed
Once you’ve received pre-approval for your SMSF loan, you will need to decide on your bare trust deed. However, it’s important to recognise that this person must not be the property trustee, and it’s also recommended that you avoid using an individual member of the SMSF.
4. Formalise the purchase contract
When contracts have been exchanged and you’ve come to an unconditional arrangement between seller and the bare trustee, your SMSF will be able to pay the deposit.
5. Gain formal loan approval
The lender will request a valuation on the property when your purchase contract has been signed and returned. Only then will formal approval for the SMSF loan be issued.
6. Issue mortgage documents
Special provisions are made for properties purchases within SMSFs when mortgage documents are drawn up. This will offer some recourse against the property being purchased.
7. Final stage
Once all these stages have been completed, the purchase will be settled. Transaction and title documents will be held on behalf of the lender.
