Example: Tom's low doc construction loan
Our hypothetical example Tom is a freelance IT consultant who runs a computing business from his home office. He purchased a block of land 3 years ago and is now ready to start building his dream home. With a deposit of $100,000 saved up, Tom wants to borrow $400,000 to finance his home's construction.
Because he is self-employed and his income fluctuates from month to month, he's unable to qualify for a regular construction loan from his bank.
Instead, Tom applies for a low doc construction loan from his bank. Thanks to his deposit, Tom can borrow up to $500,000 and he doesn't need to supply payslips or employment details as part of the loan application process.
In terms of proof of income, all he has to supply is a signed income declaration. The loan is set up so that he only has to pay interest on his progress draws during the expensive construction process.
With the finance he needs, Tom is able to oversee the construction of his dream home within 6 months. He then moves in and starts paying off the principal and interest on his low doc construction loan.
* This is a fictional, but realistic, example.