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SMSF Loan Liquidity Requirements

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Setting up a loan to invest in residential or commercial property through your self-managed superannuation fund (SMSF) can be outright complicated for most people.

That’s because some banks have special loan liquidity requirements for SMSF loans that require super funds to maintain a specified amount of money after settling the mortgage.

Here, we’ll break down all SMSF loan liquidity requirements to help shed light on how much you can borrow and what you need to qualify for an investment loan with your SMSF.

How much liquid assets should you have in your SMSF?

Banks and lenders usually compute their loan liquidity requirements as a specified percentage of the investment property’s value rather than the loan amount itself.

This liquidity requirement is usually roughly 10 to 20% of the property’s value in cash on your super fund account.

For instance, say you need to purchase an investment property worth $500,000. In that case, your lender may need you to maintain about $50,000 in liquid assets in your SMSF account.

But keep in mind that you also need to factor in process fees and acquisition costs, such as conveyancer fees and stamp duty, which could amount to 3% to 5% of the property’s total value.

It’s safe to say that you should have about 30% of the purchase value in liquid assets. But since SMSF policies vary between banks and lenders, we recommend speaking to our specialist mortgage brokers at 1300 052 055 today.

How do lenders evaluate an SMSF loan application?

Banks and lenders usually assess the contribution from your job or consider your gearing level, which determines how much you’re loaning against the property’s overall value.

More often than not, they consider the amount of your deposit. You should provide at least a 20% to 30% deposit as a rule of thumb. We also have several lenders in our panel who accept lower minimum deposits.

Furthermore, the higher your rental yield from the property, the better your chances of getting approved become.

How much can I apply for a loan?

Our specialist mortgage brokers at Plan A Mortgage can help you apply for:

  • Standard SMSF Investment Loan: Enjoy up to 80% property value loan. Remember that most banks and lenders will limit your loan amount up to 75% of the property’s value.
  • Commercial Property Loan: Get up to 70% property value loan for commercial and non-specialised securities.
  • Low-doc: Apply for a no income evidence loan

Keep in mind that SMSF lending policies differ between banks and non-bank lenders. They also evaluate your application differently. Call us on 1300 052 055 to discover if you qualify for an SMSF loan today.

How can I avoid the bank’s liquidity requirement?

While liquidity requirements are rather common among most banks and lenders, a select few require no SMSF loan liquidity at all.

To increase your chances of getting away with the requirement, consider the following workarounds:

Decrease your Loan to Value Ratio (LVR)

Some banks and lenders may waive a liquidity requirement by minimising your risk, especially if you’re only borrowing as low as 70% of the asset value.

Having an excellent serviceability

Having a stable job that provides a good income and having no significant loan will encourage banks and lenders to waive their liquidity requirements. That’s because they see you as a low-risk borrower.

Having a robust cash flow

A stable and robust cash flow will make banks and lenders worry less about your mortgage, leading some of them to approve your loan application without any liquidity requirement.

Having a solid backup plan

Suppose you end up short of funding in the long run, as long as you can sell another property or earn extra contributions from your super fund. In that case, you can still get away with liquidity requirements.

What if I’m nearing the retirement age?

Typically, banks and lenders increase their SMSF liquidity requirements up to 20% as you near the retirement age.

But what matters is how long you’ll keep meeting the repayments and how you plan to meet them.

That includes establishing a strong exit strategy. We recommend speaking with an accountant or financial advisor to discover how you can formulate a sound strategy that works.

Why do lenders and banks have liquidity requirements?

Since SMSFs are technically self-servicing accounts, they usually don’t rely on job contributions, among other things.

Because of that, banks would want to mitigate the risks. Hence, they would want to guarantee that you have enough funding to repay the loan.

When an SMSF runs dry, the risks of missing repayments will increase due to the lack of liquidity that beneficiaries may need for emergencies.

In other words, banks and lenders prefer larger super funds with significant liquidity since they have fewer risks of missing mortgage repayments.

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How our SMSF mortgage brokers help.

Applying for an SMSF loan can be complicated, and committing a small mistake can magnify it in the long run. Our mortgage brokers at Plan A Mortgage have your back covered to ensure everything from the application to settlement goes well.

Our mortgage brokers specialise in SMSF loan applications and will help you maximise your approval chances.

Call our team on 1300 052 055 or fill out our contact form to discover your SMSF loan options today!

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