Before we directly jump on to the details of low doc construction lending let us first understand what low doc loans are? Low doc loans are for those borrowers who cannot produce proper documentation of their income. Usually, these loans are for self-employed people who cannot have a source of regular income. To avail a low doc loan the borrower has to give a significant down payment.
If you are self-employed and do not have a verified source of income then low doc construction lending is the best option for you to build your dream house. Without proper income source, it will be hard for you to get a regular construction loan. Today, you can find some private lenders online that provide low doc construction loans and you can easily apply for such loans from their website. But the rate of interest of such loans is quite high and you need to bear heavy EMI amount every month. You can reduce your interest rate by secure your loan with some collateral or you can top up your loan after certain period to reduce your interest rate.
How would you avail Low Doc Construction Lending?
Though this loan is for those who do not have a verified or regular income, the bank or the lending agency will have to verify your income. There are three ways in which the money lender can verify your income:
1. You need to produce the bank statement for the last six months.
2. Record of accounts of your business of the last six months. This is done to verify and confirm that your business is generating revenue.
3. You need to produce the BAS statements for last 1 year. This is the most common way to verify your income.
Whenever applying for low doc construction lending, produce all your genuine and authentic documents. If you try to dodge the lender your application will get rejected.
Advantages of Low Doc Construction Lending
1. Less Interest: Construction loans are given by the financial institution as the construction is done. This is not similar to home loans. So the interest is applied on the whole amount that you borrow from the lender, not one the regular borrowing amounts throughout the construction. If you complete the construction in quick time then you will have to pay less interest. Once the construction is complete it turns into a regular loan.
2. Pay as the construction progresses: As mentioned above the low doc construction lending differs from regular loans and the repayment schedule is sketched according to your total expenditure. You will have to produce proper bills or invoices of your construction project and you must submit all supporting documents. The lender then pays directly to the builder or the construction agency.
3. Variable interest rates: As per the Australian Securities and Investments Commission, low doc construction lending is available in variable interest rates. The variable interest rate might turn out to be beneficial for you. In variable interest rate usually, you end up paying less interest when compared to fixed interest rates.
What other documents do you need to provide?
Though you need not produce any verified financial statements, you will have to produce a few compulsory documents that are mentioned below:
1. A copy of your construction project contract.
2. A copy of the stamped council approved plans
3. Specifications/schedule of finishes
4. Construction certificate (NSW) or building permit (VIC)
5. Builder’s insurance
6. Builder’s risk insurance / public risk insurance
With low doc construction lending building a home for self-employed people has become much easier than before. This was all that you needed to know about this loan. To know more about this loan in details consulting a professional is highly recommended.