Low Doc Construction Loans are ideal for those who are self-employed or cannot provide up to date tax returns.
Since the Global Financial Crisis, low doc construction loans have been harder to source and the lending criteria has become stricter. Now, traditional low doc loans (with no proof of income required) are not available, though verification of income can now be made by ‘alternative means’.
Income Verification Options
There are three main ways for lenders to verify income other than by payslips or referral to tax returns:
- An accountant’s letter that confirms your income over a certain period. This has no recourse on the accountant if the loan ever went into default.
- Last 6 months of business trading statements. This is to confirm revenue is being generated by the business, with the bank usually allowing up to 1.4 times the revenue as declarable income.
- Last 12 months of BAS statements. This is the most common method for income verification. If there is mortgage insurance required, the insurer will only use a maximum of 40% of annual turnover from BAS statements. Not so good if you are a contractor or service orientated industry.
It’s easy to see how using the wrong type of income verification could led to your mortgage application being declined.
What Is The Maximum Percentage I Can Borrow?
The maximum that can be borrowed using a low doc construction loan is 80% of the land and construction value with mortgage insurance, or 60% of the value without mortgage insurance. Low doc construction loans work the same way as a normal construction home loan, and the application process differs only in regards to income.
Are The Interest Rates Higher?
Generally, low doc construction loans are subject to higher interest rates than loans where tax returns have been used to verify income. However, there are some lenders that are extremely competitive in the market, though these may have stricter lending policies (or require higher deposits).
Whatever your needs for a low doc construction loan now, when your tax returns are up-to-date we will be able to transfer the mortgage to a standard loan with lower rates and costs.
Contact us today to discuss your requirements and discover the most competitive low doc construction loans on the market.