Borrowers who are self-employed and have the goal of constructing an ownership home can take the advantages of low doc construction loans. As the name suggests, low doc construction homes are very easy for any self-employed person to get the funds required without the obligation to showcase proof of their earnings. Whether you are building a new house or renovating your existing house, these are both expensive affairs. This is where low doc construction loans can help you with the necessary funds. Read on to find out more about this type of loan.
Such loans were not available for the purpose of construction in the past. But nowadays, a lot of major banks have become quite flexible about their lending criteria and are offering such loans for construction purposes. This is good news for you as a potential homeowner, because you can get the required finance for that dream construction project you have been planning for ages.
How much can a homeowner borrow?
You can borrow up to 80% of the value of your land along with the costs associated with the construction when you opt for low doc construction loans. However, in order to borrow this amount, there is certain eligibility criteria listed below:
- You must possess a license for engaging yourself as a builder or you must use a builder who holds a proper license.
- You need to provide proof of income with the help of business statements, bank statements, or a letter from the accountant.
Eligibility criteria for low doc construction loans:
Most of the loan providers or financial institutions like the bank will only give you low doc construction loans if you have a licensed builder who is covered by Home Warranty Insurance or anything similar in the respective state.
What type of construction projects is eligible?
The following types of construction projects are eligible for low doc construction loans:
- Small development projects.
- Duplex constructions.
- Multiple units on one title.
- Weekend or Holiday Homes.
- Granny Flats.
Can a developer borrow such loans?
If you are a real estate developer, then the amount of approved low doc construction loans will differentiate based on your income levels. An 80%of the total cost of a construction project is usually what a developer can borrow or around 70% of the total completion value whichever amount appears to be lesser. However anyone who has an inconsistent income is never eligible to get such loans even if he or she is a builder.
Significant features of low doc construction loans:
- Multiple uses: The low doc construction loans can be customized for varied uses. Say for example you have a land and needs a small funding to construct the house or you want to purchase a readymade house from a certified builder, such loans are of immense helped.
- Interest rate is minimum: The idea of such loans is to help individuals save funds. As the development of the building progresses, the interests are paid gradually. You can also pay the main amount along with rate of interest once the entire construction is over and you move in.
- Draw as per progress: Low doc constructions funds are made available as per the progress of constructions being made. So the basic stages in which you can expect to get the funding are preparation phase, slab, frame stage, lockup phase, fit out phase and the completion stage.
Low doc construction loan is indeed a niche product. It is not much daunting as it is to fetch a general home loan. With the help of the knowledge shared above you can easily avail one and begin developing your humble abode.