Compared to traditional home loans, the documentation requirements for financial and asset statements are less stringent for this type of home loan. Eligibility for this loan is typically extended to individuals with a good credit score and at least one year of steady employment in the same job or field. In case of doubts regarding eligibility, seeking guidance from Lending Loop is recommended to fully comprehend the loan criteria. Moreover, borrowers may be approved of the low doc construction loan if they earn at least 20% more than the monthly mortgage payment, which serves as evidence that they will be able to meet the repayment obligations.
What are the steps to follow to get the Low Doc Construction Loan?
If you’re planning to secure a loan in the competitive mortgage market, a low doc construction loan might be a viable option. To apply for this type of loan, there are certain criteria your property must meet,
- Such as the property can be used as collateral for the loan being either new or already mortgaged against another property.
- Need to have at least one applicant with a minimum of three years’ full-time employment.
- The advantage of a low doc loan is that it requires less documentation than a standard loan, which is particularly useful for individuals with variable income due to being self-employed or working on an irregular basis or earning commission or bonuses.
Pros of having the Low Doc Construction Loan
Pay as you want
Unlike a regular purchase loan where the full payment is made in one transaction to the vendor while buying an existing home, a low doc construction loan is disbursed as the bills from the construction workers come in. The lender will provide funds according to the contract drawn up with the builder, in accordance with the construction progress.
Interest rate low
The advantage of the pay-as-you-go system in a construction loan is that you only pay interest on the amount of money that has been disbursed, resulting in a potential period of low interest payments depending on the construction timeline. After the construction is complete, the loan will typically be converted to a regular low documentation or traditional loan, depending on the borrower’s circumstances.
Rate is variable
Construction loans typically feature a variable interest rate, which can be advantageous or disadvantageous depending on the prevailing economic conditions. In a favorable financial climate, a borrower may pay less on a variable rate loan than on a fixed-rate loan. However, in an unfavorable climate, the opposite could be true. Despite this variability, having a low documentation construction loan is generally beneficial.
Quite flexible
Flexibility is the primary advantage of this low doc construction loan. If you are unable to provide the necessary documentation and fail to qualify for a standard loan, your only alternative may be to borrow from alternative sources such as family and friends. This loan type can be ideal for individuals who are self-employed or work in seasonal jobs with fluctuating income. Furthermore, borrowers who work with an experienced and knowledgeable broker can often negotiate favorable loan term.
Shorter term of approval
In addition, a shorter approval time is another advantage of this type of low doc construction loan. However, approval is also influenced by factors such as whether you are employed by a company or are self-employed, as previously mentioned. Your credit score and annual income are additional factors that could impact your eligibility for a low doc loan.
Small loan part
Low doc construction loans constitute a minor proportion of total loans. Several banks have withdrawn their low doc offerings for various types of loans, such as homeowner, investment loan, and line of credit applications, or made them accessible only under stringent conditions. While it is still feasible to locate non-bank lenders who allow low-doc loans for purchasing properties, finding those who are willing to refinance an existing low doc or investment loan is more difficult. Additionally, low-doc loans for equity release, companies and trusts, and construction are becoming increasingly rare.
Final say
A low doc construction loan can be a viable option for borrowers who cannot provide the standard documentation required for traditional loans. These loans offer greater flexibility, shorter approval times, and potentially lower interest rates during the construction phase. So have it without doubt.
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