How To Get A Home Loan With a Trust

As you may know, a trust structure comes with tax advantages and asset protection for investment properties and not only. However, it is known that many lenders don’t actually know how a structure trust loan works – and this may result in you, the borrower, missing out on certain tax advantages and potentially wasting your time with the wrong lender.

This is why, before applying for a home loan with a trust structure, you have to make sure that you fully understand how this process works so that you don’t miss any benefits.

The Lender’s Requirements

As soon as your lender receives your trust loan application, they have to carry out a credit assessment so that they find out if the loan can be approved or not.

For this, they will have certain requirements that have to be fulfilled. Here is what they will be taking into consideration when reviewing your trust loan application:

The Type of Trust

The assessment process is based on the types of trust that exist out there. For example, some financial institutions prefer family trusts while other institutions usually go for discretionary trusts.

In some instances, banks may also go for self-managed superannuation fund trusts or hybrid trusts. How you set up your trust structure is important because it is one of the elements that vary depending on your lender of choice.

You will have to either shop around for lenders or ask your mortgage broker for counsel as to which lender is the perfect fit for you.

The Credit File of the Trust

Banks will also assess the trust credit file. This is an important part of your application, as these firms usually maintain a credit file – as well as some directors or beneficiaries.

The credit file of the trust will be submitted along with the loan application for a better, proper assessment.

Beneficiaries

The institutions that have control over the lender will require you to have adult beneficiaries as guarantor. Moreover, depending on the type of trust structure you have, the number of beneficiaries may vary.

You can expect from two up to four beneficiaries in total. This is another reason why the structure of a trust makes it difficult to use it in order to take out a loan.

The Loan Structure

Most of the times, individuals don’t apply in the name of a trust. Instead, they apply for a loan in the name of a trustee or a director. They do so to access negative gearing benefits – especially when it comes to unit or hybrid trust.

Trust Deed

By using a trust deed, banks will identify the beneficiaries and trustees for those companies. A trust deed gives a lender the opportunity to evaluate and determine whether trustees or beneficiaries are in a position where they can borrow money.

Additional Documents

Naturally, you will also have to provide the bank with additional documents so that they can process a loan for a trust. Make sure to have all of the following before applying for a home loan with a trust structure:

1. Certified copy of the stamped trust deed.

2. If there’s a company trustee, a certified copy of the company constitution.

3. Identification for all beneficiaries of the trust, trustees, and directors of trustees.

4. Notices of assessment and tax returns for the trust. These documents are not always required – for example when it comes to new trusts or low doc trusts.

Can Trusts Get Discounted Loans?

It is possible for trusts to get discounted loans. The secret behind this is to find a lender that knows how to work with your particular type of trust, as well as with your proposed loan amount.

In case you find a lender that doesn’t know how to work with your type of trust, you will most likely not get a discount and you may also miss on some tax advantages.

For example, it is important that your lender processes your loan as a residential one and not as a commercial loan. If they do so, you will end up paying more fees at a higher rate.

On top of that, there are a lot of lenders that can’t approve residential loans when they are associated with trusts at all. This makes most people wonder if they will ever be able to buy an investment property with a trust structure. Rest assured, we know the right lenders who accommodate trust structures for residential and commercial purposes with both individual and company trustee structures.

Types of Trusts that Can Borrow Money

1. Self-Managed Superannuation Fund Trusts

2. Property Investment Trusts

3. Hybrid Trusts

4. Unit Trusts

5. Family Trusts

6. Discretionary Trusts

Even though all of the mentioned trusts can apply for home loans, only a few lenders will actually approve them. For example, trust with corporate/company trustees and hybrid trusts are usually more difficult to achieve in terms of financing.

Additional Fees

It is also important to know that every bank may charge an additional fee when lending money to a trust. This is because of the extra work needed to guarantee preparation and indemnity documents.

The Bottom Line

While applying for home loans with a trust structure is possible, there are a lot of other aspects that you have to take into consideration.

The most important one is finding the appropriate lender for you. This implies a lender that can work with your type of trust so that you enjoy all of the benefits that come with it – asset protection and tax advantages.

Even if the lender provides you with a good loan offer, you have to make sure that they can work on your type of trust and, overall, make it favourable for you.

If you have any questions or need more information, keep in mind that you can always contact us! Our staff will always help you find the best loan, according to your needs. With years of experience in the field, we will guide you through this process and help you apply for a home loan in no time!

Get in touch with us because we are always ready to provide you with our assistance! Contact us on on 02 9121 6247 or submit your scenario online.