Low Doc Home Loan

A low-doc loan (short for low documentation) is a type of mortgage designed for borrowers who cannot provide the standard proof of income typically required for a home loan.

But how does a low doc loan work? And what are the requirements for it? Let’s find out.

What Are Low-Doc Home Loans?

A low documentation (low-doc) home loan is a mortgage that is ideal for self-employed individuals or business owners who have a solid income but may not have the traditional proof that banks require. Instead of standard payslips and tax returns, you can provide bank statements, an accountant’s declaration, or Business Activity Statements (BAS) to prove your financial position.

If you’re in the process of buying a home and want to understand the key steps involved, here’s a helpful guide to walk you through it.

What Is A Low-Doc Home Loan?

Ideal for self-employed individuals, people with PAYG income, and investors, a low-doc mortgage allows you to purchase, refinance or renovate property with alternative forms of income verification instead of traditional home loan documents.

So, rather than payslips and tax returns, you can provide bank statements, an accountant’s declaration, or Business Activity Statements (BAS) to prove your financial position.

Since borrowers applying for low-documentation home loans cannot verify their income through standard means, lenders view loans like these as high risk. As a result, a low-doc loan comes with a higher interest rate.

The conditions are stricter as well, such as a lower maximum Loan-to-Valuation Ratio (LVR) fewer loan features, and reduced access to discounted rates.

How Low-Doc Loans Work?

Low-doc loans work similar to any other home loan. The only difference is that the lenders rely on alternative income verification rather than the standard documents required for most home loans.

As a low-doc self-employed applicant, you can verify your income with documents such as:

• Proof of ABN and/or GST registration

• Business Activity Statements (BAS)

• Business bank account statements

• An accountant’s letter

These documents provide proof of your ability to meet loan repayments. It is, however, essential to understand that low-doc loans typically involve a different structure and often carry higher interest rates.

Requirements For A Low-Doc Home Loan

To qualify for a low-doc home loan, you must meet the following key requirements:

At least 12 months of self-employment

Typically, you must be self-employed for at least 12 months. Some lenders accept six months if you have 12 months of prior experience in the same industry. More competitive loans often require 24 months of self-employment.

ABN and GST registration

Your ABN must be active for at least six months. Some lenders require a minimum of 12 or 24 months.

Income verification

Instead of traditional payslips, you can provide BAS statements (6-12 months), business bank statements, or an accountant’s letter.

Credit history

For refinancing, you must have no dishonours or arrears on your credit file in the last three months and maintain a strong credit score.

Deposit

Low-doc loans may require a larger deposit, as they often come with an LVR cap of 60% to 80%.

Whom Is A Low-Doc Loan Suitable For?

Low-doc loans are suitable for borrowers who cannot provide traditional income documents, such as payslips or tax returns.

A low-doc loan may suit you, if you are:

• A self-employed individual with fluctuating income

• A small-business owner

• A contractor or a freelancer with multiple income sources

• New business owners with a trading history

• High net-worth individuals with assets

• Expats without an Australian income record

• Individuals with proof of offshore income

• Investors who manage their income

5 Tips To Get Approved For A Low-Doc Loan

With proper planning, getting approved for a low-doc loan can be a breeze. Here are a few things to keep in mind before starting:

Prepare Alternative Income Documents

Even with a low-doc loan, you still need income documents. So, keep them ready. Lenders usually accept BAS statements, accountant’s letters, proof of ABN, etc.

Save A Bigger Deposit

A deposit of 20% or more is what lenders prefer and this improves your approval chances. Some lenders can be strict when it comes to deposits so, to be safe, save at least 20%.

Ensure You Have A Strong Business

If you are a small-business owner, ensure you can show steadily growing income over time, to be seen as a safer bet. Most lenders prefer borrowers with 1-2 years of statements.

Keep A Strong Credit-Card Record

Lenders check your credit-card history no matter what loan type you want. So, ensure you pay debts, clear any defaults, and keep your credit score healthy before applying.

Work With A Specialist Broker

Not all lenders treat low-doc loans the same way. A specialist broker in low-doc or self-employed lending can match you with lenders who are more flexible and offer better rates.

Low-Doc Self-Employed Home Loan Vs Full-Doc Self-Employed Loan

Low-doc loans are designed for borrowers who can’t easily provide standard proof of income (which can include small-business owners), while self-employed loans specifically cater to business owners who can verify their income through alternative means.

Self-employed loans can either be low-doc or full-doc loans, depending on document availability. On the other hand, low-doc loans are great for not only self-employed borrowers but also for retirees, commission-based workers, and foreign income earners.

Here are the major differences in these loan types:

To learn more, why not give our blog on Low-Doc vs Full-Doc loans a read?

Pros and Cons of Low-Doc Home Loans

Pros

• Accesible for self-employed and non-traditional earners

• Flexible documentation (BAS, bank statements, etc)

• Faster approval process

Cons

• Higher interest rate

• Large deposit required

• Risk fee required for 70% LVR and above

• Restricted loan features

• Some lenders charge additional fees

Final Words

A low-doc home loan offers a flexible pathway to homeownership for self-employed individuals, small-business owners, and those with non-traditional income sources.

To improve your chances of approval, prepare strong alternative documents, maintain good credit, and consider working with a specialist broker.

If you want to apply for a low-doc loan, feel free to call us on 1300 889 743 or complete our free online assessment form.