Home Loan Basics
What type of borrower are you? An Individual, trust or company?What's the difference between borrowing your home loan in your personal name, in a trust, or company? We explain the differences here.
Home Loan Basics
Home loans are not only taken out by individuals. When obtaining a home loan, you will be able to borrow the funds and have the assets registered to you as an individual, a trust or a company.
Each owner type (individual, trust or company) has different levels of due diligence and requirements which will need to be confirmed with the lender providing you with funds. The below is a brief explanation of these three types of borrowing entities.
Individuals
An individual taking out a home loan is simply as such i.e. a particular person(s) that the loan is registered to. For example, John and Jane Smith (husband and wife) are individuals, the loan offered to them are registered in their names.
Trusts
There are many different types of trusts: Family Trusts, Farm Trusts, Charitable Trusts etc. When borrowing under a Trust, the trustees of the trust are typically liable and will need to sign home loan documents in accordance with their rights or rules as documented in the applicable Trust Deed.
Companies
A home loan can be taken out by a company. When borrowing in the name of a company, the directors of the company will generally sign guarantee documents for the loan and ownership of the asset will be calculated by way of shareholder percentage. This process can be a little complicated and as always seeking out as much information as possible, including legal or professional advice and assistance regarding this process, will be of great value. An example of lending via a company is as below:
- Borrower: King Limited
- Owner of property: King Limited
- shareholders are Daniel King and Jane King
- Director: Daniel King and Jane King
- Guarantor: Daniel King and Jane King as they are directors and shareholders of King Limited
Before deciding how to best structure your home loan, get professional advice from your lawyer and accountant to understand which would suit your personal circumstances best.
Related Questions
What is a guarantor?
A person who agrees to indemnify the holder of a loan, all or a portion of the unpaid principal balance, in case of default by the borrower.
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