Trust loans

HomeTrust loans

Trust loans

Borrowing with a trust

Many people often use a trust to purchase their investment properties because of the asset protection and tax advantages of trusts.Unfortunately, most lenders don’t know how to structure a trust loan correctly which can result in the borrower missing out on these tax advantages.

What is a trust?

A trust is an arrangement which allows a person or company to own assets on behalf of another person, family or group of people. These people are known as the beneficiaries of the trust.

Assets are owned on behalf of beneficiaries but controlled by a trustee, who can be either a company or a person.

The trustee is governed by a trust deed which sets out the rules that the trustee must follow and also covers how profit is distributed to the beneficiaries.

At Solution Home Loans, we can arrange an appointment with an accountant to discuss more about setting up a trust for you and your family.

What do banks look for in a trust application?

When a lender receives a trust application they will carry out a full credit assessment to decide if they should approve the loan.

When assessing the loan they tend to look for:

The type of trust: Trusts are assessed in many different ways. Some banks prefer discretionary or family trusts while others are happy with hybrid, property investor and self-managed superannuation fund (SMSF) trusts.

The trust credit file: The directors and beneficiaries of a trust have credit files but did you know that trustee companies and, in some cases, trusts have a credit file as well? The banks check the file for applications to other banks and for any blemishes.

The trust deed: The trust deed confirms who the beneficiaries and the trustee actually are. The deed will be checked to make sure that the trustee has the power to apply for loans for the trust.

The loan structure: Many people choose to have the loan in the name of the trustee or director of the trustee company rather than in the name of the trust. In other words, the director of the trustee company is the borrower while the trust is the mortgagor. This is done to take advantage of negative gearing benefits when using a unit or hybrid trust.

The beneficiaries: Did you know that some lenders require all adult beneficiaries to be guarantors? Most trusts have two, three or more beneficiaries and these structures can make it difficult to borrow money.

We know what the banks look for when it comes to trusts!

How do lenders view trusts application?

Banks and other lenders in Australia tend to view trusts as extra work for them without any extra reward.

Trust applications are very complex, often with legal issues to consider, as well as more extensive paperwork to complete before approving the loan.

The majority of bank managers, mortgage brokers and credit staff do not understand how trusts work so trust applications tend to get bounced between bank departments, resulting in delays and errors.

On top of this, many bank managers do not actually know if their own bank does trust loans as many banks have ambiguous credit policies.

One of Australia’s major banks in particular cannot do residential loans for trusts simply because their computer system can’t handle them!

Solution Home Loans are mortgage brokers that specialise in financing loans for trusts.

Low doc loans for trust

Yes, it is possible to get approval for a low doc trust loan.

A low doc loan will allow you to declare your income rather than providing tax returns as proof of your income.

There are only a few select lenders that can consider low doc loans for trusts so it is critical that you speak to a Solution Home Loans broker or enquire online before you apply for a low doc loan using a trust.

Do lenders charge additional fees for trust loans?

Yes, all lenders will charge additional fees for lending money to a trust.

This is reasonable because there is additional work to be completed in preparing the guarantee and indemnity documents for the trustee and the beneficiaries (if applicable) to sign.

In most cases, the additional legal fees charged by the bank are between $300 and $600.

Can the loan be in my name rather than the trust name?

Yes, it is possible to setup the loan to be in the name of the trustee or director of the trustee instead of being in the trust name.

For example, if John Smith is the director of ABC Pty Ltd, the trustee for The Lord Unit Trust, then the loan could be set up in two ways:

Borrower: ABC Pty Ltd As Trustee For The lord Unit Trust

Mortgagor / property owner: ABC Pty Ltd As Trustee For The Lord Unit Trust

Guarantor: Collins Lord

Borrower: Collins Lord

Mortgagor / property owner: ABC Pty Ltd As Trustee For The Lord Unit Trust

Guarantor: ABC Pty Ltd As Trustee For The Lord Unit Trust

Note that some banks do not accept the second loan structure listed above.

Solution Home Loans can arrange an appointment for you to speak with a qualified accountant, to discuss further and the tax advice regarding the different structures.

Contact us or Enquire online today to find out which lenders can help with your proposed loan structure.

Applying for a loan in a trust!

Borrowing with a trust is possible!

At Solution Home Loans, we will assist you in making sure all aspects of your trust loan are perfect for maximum returns on your investments.

We know how a trust works and which lenders accept which kinds of trusts.

Contact us or Enquire online today to speak to an SHL mortgage broker who specialises in helping people to borrow money for their trust.