A construction loan is a type of mortgage which is developed to fulfill the demands of borrowers who need to borrow money to construct a home. This loan can also be availed for home renovation purposes and maintenance features. The main differences between a regular home loan and a low doc construction loan are:
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The former allows an individual to borrow a lump sum whereas the latter will first calculate the total sum of money that will be borrowed from lender to make payments to the constructor for building your house. The amount will not be given to but broken down into smaller portions that will allow you to pay in installments instead of the full amount altogether.
Regular construction loans are for salaried individuals who can furnish necessary official documents for availing the loan such as salary slips, bank statements, etc., whereas low doc construction loan is for self-employed and individual business holders who do not have the proof of income or pay slips.
Features of low doc construction loans
Construction loans can fulfill several requirements such as - you may own a piece of land and need money for building your home or you are looking forward to buying a new home or intending to renovate your old house, etc.
Most of the loans on constructions save a lot of your valuable money by cutting off interest on price during the construction phase. Once your house is ready you can make payments of principle and interest towards an entire amount of loan.
The amount of money which you have borrowed through low doc construction loan will be provided to you in terms of sets of progress payments which are made at the following stages of construction such as – Preparation, Slab, Frame, Lock Up, Fit Out, Completion etc.
Unlike other types of loans, low doc construction loans are provided by all kind of banks, big or small, credit unions and non-bank lenders too. Thus, you don’t need to hover around big banks to avail such loans.
Many lenders who provide low doc construction loans, do so with higher rates of interest compared to the regular loans so, before availing this kind of loan, you must calculate the total amount you are borrowing to see whether the amount is exceeding your budget or not.
Unlike the regular loans, availing low doc construction loans are much easier in terms of furnishing necessary documents. You just need to provide a signed declaration confirming your income and stating that you are competent of making repayments.
Many construction loans come with a deadline within which your construction work must be completed say within a year. Many times, a timeframe cannot be matched and then it becomes a problem.
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Steps for applying for a low doc construction loan
Provide all your personal details.
State the loan amount you need to borrow.
Provided a declaration statement duly signed to prove that you can make repayments.
Your self-employment status will be assessed.
You will have to provide details of your business.
A building contract duly signed by you will be necessary.
Builder’s license copy needs to be furnished.
Builder’s insurance cover will also be necessary.
Extra quotes should also be added to incorporate additional building areas which might not be included in the contract such as construction of parking area or the garden, etc.