Banks look at creditworthiness when someone approaches them for any loan products--from home loans to personal loans. This makes borrowing inherently difficult for people who have blemished credit history.

Building one’s dream house is a significant milestone to a person’s life. But having a terrible credit score can impede this significant milestone.

So how would someone, with a low credit score, still qualify for home loans or construction loans for example? The answer is low doc construction loans.

If you’re one of those thousands of Australians being haunted by their bad credit histories and are having a hard time getting their construction loans approved, don’t fret--just yet.

It is true that applying for a loan to build your dream house with a bad credit score seems impossible, but not with low doc construction loans.

What are low doc construction loans?

Low doc construction loans are types of loans that are specifically designed for developers, builders, and or investors who don’t have the commonly required tax or financial documents ready at their disposal.

But over the years some banks and lenders have relaxed their restrictions to people with low credit scores.

While lenders still prefer borrowers with seamless credit records, there are cases where they would approve loans of borrowers with bad credit history. However, lenders require that evidence be provided to justify why the erring borrower failed or have missed some repayments before.

If deemed acceptable, lenders will approve loans despite having terrible credit history.

The caveat

Low-doc construction loans are commonly availed by small-business owners or licenced builders to finance constructions.

Since these types of loans are considered “second chance” loans, it is not uncommon that lenders charge much higher interest rates as compared to its regular counterparts.

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It is worth noting that lenders still consider credit score when evaluating loan applications and lenders may still look at your credit histories when you apply for this type of loan.

This only means that lenders only relaxed the documents they require for certain types of loans. This primarily aims to accommodate those with unattractive credit scores or those who cannot produce the documents required by banks for leading loan products.

Increasing approval rate

While specific requirements vary from bank to bank, there are general requirements that potential borrowers need to have to qualify for low doc construction loans. Some of these paperwork are required to ensure continuous and enough sources of income to afford the repayments.

Only licenced builders are qualified for this loan product. If you’re not a licenced builder, you must be working with a licenced one.

You or your builder must have an updated Australian Business Number (ABN) and you must have lodged your Business Activity Statements (BAS). Any proof of business activity such as an accountant’s letter or bank statements will do in lieu of your lodged BAS.

Darin Hindmarsh is the founder and CEO of Intellichoice Finance, a broking firm based in Brisbane. He's been providing financial and broking services in the past 18 years. Hindmarsh is also finalist in the 2020 Australian Mortgage Awards - Pepper Money Broker of the Year – Specialist Lending. To jumpstart your home loan application, visit their home loan online application page today!