What Are Low Doc SMSF Loans?
Low doc loans are designed for borrowers who may not have traditional income evidence such as payslips or tax returns. For self-managed super funds (SMSFs), lenders may accept alternative documentation to verify income, but the rules and requirements can vary.
How Alt-Doc Evidence Works for SMSFs
When applying for a low doc SMSF loan, the fund trustee often needs to demonstrate the ability to repay the loan. Instead of standard income proof, lenders might accept alternative documents. These can include accountant declarations, business activity statements, or bank statements, depending on the lender’s policy.
It is important to note that each lender has its own criteria for what constitutes acceptable alt-doc evidence. The documentation must clearly support the fund’s income and repayment capacity.
Key Considerations for SMSF Borrowers
- Lenders may require a larger deposit because of the perceived higher risk of low doc loans.
- Interest rates on low doc loans might be higher than standard home loans.
- The SMSF’s sole purpose test must be met; the loan must be for the fund’s investment strategy and not for the personal benefit of members.
- Borrowing within an SMSF is subject to strict regulations, including the need for a separate holding trust in many cases.
Steps to Prepare Your Application
- Ensure your SMSF’s trust deed permits borrowing.
- Prepare your alt-doc evidence well in advance, ensuring it is complete and current.
- Work with a mortgage broker or lender who has experience with SMSF lending.
- Review your SMSF’s cash flow to show that loan repayments are sustainable.
FAQs
Can any SMSF use low doc loans?
Not necessarily. Lenders will assess the SMSF’s financial position and the strength of the alt-doc evidence. Some lenders may not offer low doc loans to SMSFs at all.
What documents might count as alt-doc evidence?
Common examples include a signed letter from an accountant, recent BAS statements, or business financial statements, but eligibility varies by lender.
Are low doc SMSF loans more expensive?
Often yes, because of the perceived risk, interest rates and fees may be higher than for standard loans. It is advisable to compare offers.
Do SMSF low doc loans have special conditions?
Yes, SMSF loans typically require the property to be held in a bare trust and the loan must be limited recourse. These conditions apply regardless of the documentation type.