What Are the Pros and Cons of Low Doc Construction Loans?

It may have been many times, you have tried to reconstruct your existing home or planned to buy a home, but your financial status has denied that. You might have approached to the banks, but your credit ratings and non-steady income have become the major bottleneck of securing a loan. 

So what do you do? Many small banks and financial institutions like the small credit societies and non-banking financial organizations are providing low doc construction loan, and they are beneficial to the people who do not have multiple documents in support of their income. Even self-employed professionals can also apply for such loans with minimum documents. However, before taking these types of loans, one should weigh the pros and the cons and decide.

Low Doc Construction Loans

The Advantages of Low Doc Construction Loan

• Fewer Documents Needed – Since the lending criteria are relaxed by the lenders of the low doc construction loan, it becomes quite straightforward for the borrowers to get these types of credits after submitting fewer documents.  You do not need to submit your income proof along with lots of additional supporting documents for such loans and you can easily apply for low doc construction loan with your construction proposal. In some cases, lenders can offer you collateral loan where you need to apply for the loan with secured mortgage.
• The Flexibility of Payment – The repayment of these types of loans is quite flexible. Unlike other housing and construction loans where the interest needs to be paid on the total loan amount, here one needs to pay the interest only, and you need to pay the principal amount just after the completion of the project.
• Increased Option - One can get many lenders providing low doc construction loan, and this gives an opportunity to the borrower to select the best considering the repayments options, interest rates, the minimal documents needed and many more. The market is competitive these days, and you can get customized terms and conditions from private lenders. Even they can also reduce your interest rate and they can offer you top-ups on your existing loans.
• Part Payments – As the lenders provide low doc construction loan in stages and most of the cases six stages of construction, therefore the loan amount is fully utilized by the borrower on the building else the lender would not give the next phase of the loan. It allows the borrower to use the credit only for the construction purpose and they do not spend the loan amount to clear their other dues.  
• Reduces the Stress of Repayment – As only interest needs to be paid during the construction process. And that too proportionately increases as the volume of the loan amount increase with the stages, and the principal amount and the interest is paid only after completion of the construction, it allows less financial and mental stress on the borrower at the time of hard times during development. 

Low Doc Construction Loans

The Disadvantages of Low Doc Construction Loan

High-Interest Rates And Fees - As minimum documents are needed for establishing the income proof, so lenders can charge you higher rate of interest for low doc construction loan. It is natural because the lender takes much risk of giving the loan to someone who does not have any steady income proof. Even they can also approve your loan with your poor credit score. 

Apart from that, they can also charge you few additional fees such as processing charges, pre-payment fees, late fine and pre-closing charges. So you can check their terms and conditions before applying for the loan. Today, you can find some private lenders online and you can check their official websites to find out their interest rates on low doc construction loan. Then you can choose the best deal after comparing few lenders.