Low Doc Construction Home Loans Step by Step Guide for Application
Low doc construction finance loans are available for entrepreneurs, business owners or contractors and consultants looking into securing their own home through a mortgage.
Unlike regular mortgages, low doc construction home loans require less documentation since contractor and consultants and business owners may not have as much financial information available for banks and lenders to check and verify until the end of the tax year-or until the following tax year.
Employment history and proof of income are just some of the basic requirements for business owners, contractors and consultants may not be able to provide when securing a home loan through a bank.
Low documentation home loans are for individuals with irregular incomes. A steady source of income – to repay a loan – is a common denominator among conventional banks and lenders when reviewing mortgage applications. However, being a contractor or consultant or business owner does not necessarily mean that they earn less than a regular employee does. However, like traditional mortgages, a low doc mortgage requires a strong credit history for faster and greater chances of approval.
Entrepreneurs and business owners may get as much as 80% of their LVR cost under the following conditions for their intended construction:
- A licensed builder with an acceptable contract who holds all insurances
- Must have an ABN or ACN
- All other details from proof of identification through to evidence of assets held and credit history as needed by a particular lender
So how can you apply for a low doc construction home loan? Here is a step-by-step guide you can follow.
1. Start saving for a deposit
Prior to applying you will need 15% minimum deposit with many lenders needing 20% plus, and has to be evidence from a prior sale of where funds have been held in an account or existing equity within another property.
No deposit home loans are also available, but the conditions are onerous as the regulatory bodies have taken a dim view of these loan types since the GFC you may need to pay for a higher interest rate for such loan conditions and the conditions really suit only a limited group of applicants.
2. Apply for a home loan pre-approval.
To avoid chasing properties that you could not afford to build or renovate with these low doc construction loans and to get a better idea if you can really afford a mortgage, getting a pre-approval from our brokers helps. Although some pre-approvals are not accurate, the results are somehow reliable enough to know where your finances are in relation to your desired home loan value.
3. Choosing your property
Choosing the right land to build a new residence on or sourcing the best property to renovate involves spending time researching online, talking with local agents in the areas you have selected and got a firm idea of the type of finish, type of build and all the costs with buffers you might encounter. In other words, start with the end in mind and you will have a better chance of success. Cost blowouts or over capitalizing can send you and your relationship to the wall.
4. Calculate your borrowing power.
How much mortgage can you really afford? Intellichoice has a borrowing calculator that can help you with the process.
5. Preparing the documents needed
- Personal details
- Loan amount
- Signed income declaration
- Australian Business Number
- Business Activity Statement (BAS)
- A signed Housing Industry Association/Master Builders Association building contract
- Approved building plans
- Builder’s license
- Extra quotes for possible extra work
Different states in Australia may require you to submit an additional set of requirements. Talking to a loan specialist can guide you through the process.
Lastly, but as important as the rest…
Engage with your broker
In-depth discussions around your wants and needs are-AND if there are some issues which could affect your application need to be discussed in-depth with your broker. Remember that often the broker will not get p[aid if the application does not go through. So making sure the broker has everything needed to counter something a lender discovers during an application is best dealt with before being discovered by the respective credit departments.
Intellichoice brokers have in many cases twenty plus years’ experience in these loans types so can best detail a solution from past experience!