It might feel tough to secure a construction loan, especially if you have bad credit. But having a less-than-perfect credit history should not hinder your dream of building a home. We have lenders specializing in bad credit construction loans who can assist you. 

Loan Amounts and Criteria: Most lenders often reduce the loan-to-value ratio (LVR) to less than 80% due to the perceived high risk of bad credit construction loans. However, we work with non-conforming lenders who can allow you to borrow: 

• Up to 75% of the land and construction cost if you have an impaired credit history. A larger deposit improves your chances of getting a better interest rate. 

Accepted Types of Bad Credit: The construction loan lenders consider various types of bad credit, including an unlimited number of defaults, judgments, or write-offs up to $1,000 (paid or unpaid), defaults exceeding $1,000 registered for over 24 months, and one-day discharge from bankruptcy. 

Location Restrictions and Exceptions: While many lenders limit construction in certain areas for bad credit situations, our panel includes lenders allowing construction loans at LVRs between 75% to 85%. A specific lender even permits borrowing up to $1 million at 85% LVR for properties in New South Wales or Victoria. 

Qualification Criteria: Lenders take a common-sense and risk-averse approach. Providing a valid reason for credit impairment, ensuring construction begins within 3 months of settlement, and completing it within 15 months are key criteria. All required documents for a construction loan must be in place. 

Proving Income: For PAYG applicants, the last 2 payslips and supporting documents like a letter of employment or tax assessment notice are needed. Self-employed applicants require the last 2 years’ tax returns and tax assessment notices. 

Frequently Asked Questions: 

• Interest Rates: While interest rates may be higher initially, we assist in finding a lender that suits your needs and provides a competitive rate. Rates depend on the severity of bad credit, but refinancing is an option once credit improves or LVR is below 80%. 
• Building vs. Buying: Building can save on stamp duty, especially if buying vacant land and building, compared to purchasing an established property. Stamp duty on land is generally lower than on a complete house. 
• Partner’s Bad Debt: A partner’s bad credit affects a joint home loan application. Options include debt consolidation or delaying construction until the bad debt is cleared. 
• Loan Term: While the typical maximum loan term for construction loans is 30 years, we have a lender allowing up to 40 years for bad credit construction loans. 
• Improving Approval Chances: To enhance your appeal to lenders, work on improving your credit score, remove any incorrect listings, increase your deposit (aim for 20% to avoid Lenders Mortgage Insurance), and pay off new debts promptly. 

Applying these strategies demonstrates your commitment to improving your creditworthiness to potential lenders.