Who uses them
How to compare low doc vs standard home loans
How to apply
Which lenders offer them
Which features to look out for
Low doc or low documentation home loans are loan products that don’t require all the evidence of income and employment that regular home loans do. They are ideal for freelancers, small-business owners and contractors who might not have access to up-to -date tax returns, payslips or employment contracts to prove their income.
While these loans can be great for certain borrowers they do have a few drawbacks. It’s important that you’re aware of all the implications and extra costs before applying.
Who uses low doc home loans?
Low doc home loans are ideal for anyone who can not produce the employment contracts, payslips or financial statements as documented evidence of income.
- Self-employed and contractors
Many self-employed people don’t have up-to-date records of their past income, or any documentation to prove that they can continue to earn an income that will allow them to service their mortgage repayments for a first home. Learn more about first-home buyer home loans.
- Small-business owners
Small-business owners often have less than two years of financial records, and may not have accurate, up-to-date financial records. A low doc home loan can allow them to finance the purchase of a property without full documentation.
Those who rely on income from investments (including property investors) often don’t have the same documentation that those in steady employment do. A low doc home loan may be a smart way to buy more investment properties or get into a new home. Learn more about investment home loans.
- Seasonal workers
Those who work for only part of the year, then use that income to cover living costs for the rest of the year, may require a low doc home loan. This might include those working in the mining, agriculture or tourism industries.
Low doc home loans vs standard home loans
There are a few key differences between low doc home loans and regular home loans that are important to understand before making an application.
- Reduced or different documentation required
Low doc home loans are for borrowers who don’t have access to the usual proof of employment and income so usually require less documentation, or different types of documentation.
For example, instead of a contract of employment you may need to provide a business activity statement, a self-verified income declaration or a letter from your accountant.
- A lower maximum loan to value ratio (LVR)
Because low doc home loans are considered risky by lenders they usually have a lower maximum LVR of 60% and require a 40% deposit.
Some lenders will allow an LVR of up to 90% if you can prove that your income can service the mortgage but you will usually have to pay lenders mortgage insurance (LMI) if your LVR is above 60%.
LMI is a one-off cost charged by your lender to protect them against losses in the event that you can’t make mortgage repayments. It can cost several thousand dollars and can usually be rolled into your mortgage so that you don’t have to pay it upfront.
- A higher interest rate
As with any type of lending, the rate applied to your home loan will partly be determined by the level of risk to the lender in financing the property. Low doc home loans are generally considered high risk, and often feature slightly higher interest rates as a result. Learn more about home loan interest rates.
How to apply for a low doc home loan
While the process of applying for a low doc loan is similar to a standard home loan, there are certain requirements and eligibility criteria which may make the process more difficult. To qualify for a low doc home loan, you will generally need:
- An Australian business number (ABN)
- A registered business name
- To be GST registered if you have revenue over $75,000
Each lender has different criteria, but many require that your ABN has been registered for at least one year. Once you’ve sorted those three items, you’ll need to prepare your documentation and choose a lender and loan product. Learn more about applying for a home loan.
Lenders may take a particularly close look at your credit history and asset position when you apply for a low doc loan. To improve your chances, make sure you check and improve your credit history and pay off any existing debts before applying.
Documents needed to apply for a low doc home loan
To prove your income, identity and employment when applying, you’ll need to provide alternative documentation. The specific requirements will vary between lenders, but usually includes:
- 12 months of business activity statements
A business activity statement (BAS) is a form that businesses must submit to the Australian Taxation Office that details all income, expenses, assets and liabilities for tax purposes. Usually, you’ll need to submit 12 to 36 months of BAS forms to apply.
- Proof of registered business name and ABN
To verify your ABN and business name you must provide documentation from the ATO. Usually, lenders will want your ABN to have been registered for two years or more and require that you are GST registered if your business turns over more than $75,000.
- A signed income statement
As part of your application, you’ll need to submit a signed statement that declares your income so that your lender can be sure you can make repayments. If you have an accountant they may also be required to provide a signed declaration.
- Up to six months of bank statements
Just like when applying for a regular loan you’ll need to supply up to six months of bank statements - from both personal and business accounts.
- Tax returns
Lenders often require up to two years of tax returns to verify your income.
Generally speaking, non-bank lenders will have less stringent credit requirements so your chances of approval may be higher with them than with big banks.
Low doc home loan lenders
Many home loan lenders offer low doc home loans, and most offer variations of their regular loans that can accommodate low doc borrowers. These include:
- Commonwealth Bank Australia
- St. George
It’s important to compare low doc loans from several lenders using comparison sites, a mortgage broker, or by shopping around yourself.
Low doc home loan features
Low doc home loans are usually available with all the same features that regular loans have, however there are a few that may be particularly attractive to business owners, self-employed people and contractors:
- Redraw facility
A redraw facility allows you to access any extra repayments you’ve made on your home loan’s principal for when cash is tight. It also enables you to make extra repayments to pay your loan off faster and reduce your interest costs.
This is an option for freelancers and business owners who have irregular income and need cash to cover expenses.
- Offset account
Low doc home loans often have higher interest rates, which can make them expensive in the long run. An offset account can reduce that interest cost by linking a savings or transaction account to your home loan balance. Interest is then calculated by deducting your loan the savings account balance from your home loan principal.
If you’ve got savings this feature could save you thousands of dollars over the life of the loan. Learn more about home loan types and features.
- Repayment flexibility
Many contractors, business owners and self-employed people receive large lump sums of income at once. Putting these lump-sum payments towards your mortgage could help pay it off quicker and reduce the amount of interest you pay.
To do this, you’ll need repayment flexibility - the ability to make additional payments to your mortgage without being charged a fee. This may involve having a variable or split rate home loan, or a redraw facility. Learn more about home loan fees and repayment options.
Low doc home loans are designed for freelancers, business owners, contractors and other people who don’t have the normal documents required to apply for a home loan.
For help getting your documents together and getting your application approved it may be a good idea to speak to a mortgage broker. They’ll help you improve your application and apply through lenders they know are more likely to approve your application.
If you’d rather apply directly there are a number of lenders who offer low doc home loans, including big four lenders like CBA and ANZ.
Low doc home loan FAQ
Are low doc home loans for self-employed people?
Yes, low doc home loans are ideal for self-employed people, business owners, contractors and anyone who does not have the income verification documents normally required to apply for a home loan.
Can I get a low doc home loan if I’m self-employed with bad credit?
Yes, they are available, although you may need to apply through a specialist lender, non-bank lender or mortgage broker and you may be charged a high interest rate.
Can I get a low doc home loan with a low deposit?
Yes if you can prove that you have the income to service the loan you should be able to get a low doc, low deposit home loan with a deposit as small as 10% (90% LVR). Although if you have less than a 40% deposit (60% LVR) you may have to pay lenders mortgage insurance and higher interest rates.
Are low doc home loan interest rates higher than normal rates?
Low doc home loan interest rates are sometimes higher than regular home loan interest rates because lenders identify low doc borrowers as higher risk. However, if you have a deposit of 40% or more you may be able to secure market interest rates.