Applying for a loan to build your dream house with a bad credit score seems impossible, but not with low doc construction loans.
This loan type is also ideal to developers,builders and some investors who don’t have the commonly required tax or financial documents ready at their disposal.
Building one’s dream house is a significant milestone to a person’s life. But having a terrible credit score can ruin this moment, which is a bum.
But over the years some banks and lenders have relaxed their restrictions to people with low credit scores.
They’ve become more forgiving and accommodating to those who have performed relatively poorly with their repayments and start giving them second chance loans, if valid reasons are explained and evidenced.
What is a low-doc loan?
According to Australia’s MoneySmart, low-doc loans are types of loan that require relatively less documents to support one’s financial capacity.
It is commonly availed by small-business owners or licenced builders to finance constructions.
Generally, it comes with much higher interest rates as compared to regular home loans.
Credit score matters
If you’re thinking that banks no longer consider credit score when evaluating loan applications, you’re absolutely mistaken.
This doesn’t mean that debtors no longer look into your credit histories when you apply for your next loan.
This only means that lenders only relaxed the documents they require for certain types of loans. This primarily aims to accommodate those with unattractive credit scores or those who cannot produce the documents required by banks for leading loan products.
How to qualify?
While specific requirements vary from bank to bank, there are general requirements that potential borrowers need to have to qualify for low doc construction loans.
Licenced builder
Only licenced builders are qualified for this loan product. If you’re not a licenced builder, you must be working with a licenced one.
ABN
You or your builder must have an updated Australian Business Number (ABN).
BAS
You must have lodged your Business Activity Statements (BAS). Any proof of business activity such as an accountant’s letter or bank statements will do in lieu of your lodged BAS.
What if I don’t meet these requirements?
In the event that you don’t meet the minimum requirements for these low doc construction loans, you have an option to apply for a development loan for your project.
But a minimal drawback about development loans is that borrowers are required to provide a deposit and these can be significant.
How much can I borrow?
The amount that one can borrow depends primarily on the cost of the construction. Unlike any other home loans, in a low-doc construction loan, the loaned amount is given in multiple tranches, often called draws.
Usually, lenders would approve around 80% of the total cost of the construction. This value still depends on individual applications.
Where can I use it?
Once your application for low doc construction loans have been approved, you can now start funding the construction of duplexes, multiple units on one title, granny flats, holiday homes, and other small developments.
Talk to your broker today
If you’re unsure whether you would qualify for these types of loans, it’s best to talk to your trusted mortgage agent today and discuss your plans. They are knowledgeable in providing professional advice to individuals and builders get loan approval fast.
Intellichoice is a mortgage broking company that specialises in home loans, among others. They’ve been operating in the past 18 months and have assisted many borrowers achieve their dream homes and builders materialised their projects.
Talk to us today by calling at 1300 55 10 45 or +61 7 3624 1900 if you’re from overseas.
