What is a Low Doc Loan?
A Low Doc (or Low Documentation) Home Loan is a type of home loan that can be approved without the normal income verification requirements. What this usually means is that you sign an income declaration and your bank will accept this as proof of your income without the need to see your tax returns and other financials.
Why do Self Employed people get Low Doc Loans?
If you are Self Employed then you'll know from experience that the banks see you as a higher risk and tend to be more conservative when assessing your loan application.
They'll also ask you for the last two years tax returns and assessments for yourself and your business, two years financial statements and may even need to see BAS statements or interim accounts. As you can imagine the paperwork really begins to pile up!
On the other hand with a Low Doc Loan you state your income on a form and that is it! 100 pages on complex junk is reduced to just one page! As you can see it is very simple.
But simplicity isn't the only reason to use a Low Doc. More often the tax returns of self employed people do not reflect their true income. A good example is depreciation, which is a tax deductible expense but isn't actually an out of pocket expense. Some other businesses such as restaurants, taxi drivers, tradesmen or retail outlets receive most of their income as cash which doesn't show up in their tax returns. Obviously if they were to show their tax returns to the lender they'd be declined.
Who can get a Low Doc Loan?
When they were first introduced Low Doc Loans were only available for the self employed and had to be supported by a letter from the borrower's accountant to confirm their income. Modern day Low Docs are far more flexible!
Self Employed borrowers are normally required to have a valid ABN that has been running for at least two years and is registered for GST. Some lenders do not require that you have an ABN or are ok with ABNs that have only just been registered.
PAYG (or employed) borrowers are now allowed to obtain Low Doc Loans through some of our lenders. You can use a PAYG Low Doc Loan if your salary and bonus structure is too complex to prove or if you have multiple casual jobs. We don't recommend a PAYG Low Doc Loan for anyone who has a normal job, if you have to lie about your income to get a loan then you probably shouldn't be borrowing that much in the first place!
What is an Income Declaration Form?
An Income Declaration Form is a method for the banks to verify your income when applying for a Low Doc Loan. Typically the form will ask you to state your name, your business's name, your business's ABN, the amount you are borrowing and the indicative repayments. At the bottom of the form is usually a declaration confirming that you believe that the income you are stating is true and that you can afford to make the loan repayments.
Every lender has their own Low Doc Declaration, so it may vary. Some lenders such as ANZ will also ask you to verify your Assets & Liabilities, while others such as Citibank have a No Doc option that will allow you to not even declare an income or anything about your asset position.
How do I apply for a Low Doc Loan?
We are specialists in Low Doc Loans and can help you find the right lender. Just go to our Apply for a Low Doc Loan section and send us your details. We'll be in touch with a few competitive quotes to help you make the right decision.
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