What is a low doc home loan?
A low doc home loan allows borrowers to verify their income using alternative documents rather than the financial records required for a standard home loan, such as recent payslips or up-to-date tax returns.
Lenders view low doc loans as higher risk, meaning they often come with higher interest rates or fees, higher deposit requirements or stricter lending conditions.
However, once approved, a low doc home loan works much like a standard home loan, with a range of features available depending on the product.
Who is eligible for a low doc home loan?
Low doc home loans are designed for borrowers who don’t have the standard income documentation required for a regular home loan. Those who are most likely to use them include:
- Self-employed individuals
- Small business owners
- Sole traders
- Contractors and freelancers
You’ll also need to meet all other standard lending criteria, including age and Australian residency requirements.
Could a standard home loan still be an option?
Yes, being self-employed does not automatically mean you need a low doc home loan. Some lenders have more flexible standard lending policies for self-employed borrowers, particularly where their income is stable and they have current financial records. Qualifying for a standard home loan could give you access to more lenders and products, as well as lower rates, fees or deposit requirements.
Low doc vs standard home loans
| Low doc home loan | Standard home loan | |
|---|---|---|
| Documentation required | Income verified using alternative documents like BAS, bank statements or an accountant’s letter | Standard income documents, such as payslips, tax returns, income statements or financial statements |
| Interest rates | Usually higher due to increased risk | Typically lower for borrowers with stable income and good credit |
| Loan-to-value ratio (LVR) | Often capped at 60–80% | Can go up to 95% with lenders mortgage insurance (LMI) |
| Deposit required | Often a minimum of 20%, depending on the lender | From 5%, depending on credit and LMI |
| Lender availability | Available through a smaller range of banks, non-bank lenders and specialist lenders | Available from a broad range of banks and other home loan providers |
| Loan features | You can access the same features as standard borrowers on the same product, but the range of available products is more limited | A wider range of products and features is available |
Why lender choice is especially important for low doc loans
"There’s no single set of rules for a low doc home loan, and every lender has slightly different criteria. The documents accepted, required trading history and maximum borrowing limits can vary significantly. It’s important for self-employed borrowers to match their home loan application to a suitable lender. Choosing the right lender can help you secure the best available terms for your circumstances and may be the difference between having your application approved or declined."
Where can I get a low doc home loan?
Low doc home loans are available from a smaller pool of lenders than standard home loans. While some mainstream banks may consider low doc applications in limited circumstances, many don't offer these loans at all. As a result, borrowers often need to look to non-bank and specialist lenders, which may offer more flexible ways to verify income.
On top of this, each lender has its own requirements, meaning not every low doc product will suit your circumstances.
A mortgage broker can compare available options, identify lenders whose requirements you are more likely to meet and help you prepare an application that fits their criteria.
Why apply for a home loan with Savvy
What documentation is required for a low doc home loan?
Low doc home loans offer more flexibility in how you verify your income, but lenders will still need enough information to assess your business, earnings and ability to repay the loan.
Exact requirements vary between lenders, but you may be asked to provide:
- Proof of ABN and GST registration: confirms that your business is registered and shows how long it has been operating.
- Income declaration: states the income you earn through your business and may be completed by you or supported by your accountant.
- An accountant’s letter: provides independent confirmation of your income or the financial position of your business.
- Bank statements: show the income being paid into your personal or business accounts and whether it has been consistent over time.
- Business Activity Statements (BAS): show the turnover and GST amounts your business has reported to the ATO.
- Personal tax returns: provide a formal record of the income you have declared.
The more evidence you can provide, the stronger your application. This can improve your chances of approval, give you access to more loan options and potentially help you secure better terms.
For example, an application supported only by an income declaration or accountant’s letter may give you fewer options than one that also includes recent bank statements and BAS showing consistent business income.
What deposit will you need for a low doc home loan?
Low doc home loans tend to require a larger deposit than standard home loans. While standard borrowers may be able to purchase a property with a deposit as low as 5% to 10%, low doc applicants generally need to contribute at least 20% of the property’s value because of the higher level of risk involved for lenders.
In some cases, where the borrower’s financial situation is more complex or the lender is particularly cautious, the LVR may be limited to 70% or even 60%, pushing the required deposit higher.
Some specialist lenders may offer low doc loans with a deposit of less than 20%, but these can come with stricter conditions, higher interest rates or fees, and lower borrowing limits.
If you borrow more than 80% of the property’s value, lenders mortgage insurance (LMI) or a lender risk fee may also apply. LMI is a one-off charge that protects the lender if you cannot repay the loan. It typically costs around 1% to 2% of the loan amount, adding thousands to the total cost.
Pros and cons of low doc home loans
Pros
-
Accessible for non-traditional earners
Low doc loans offer a home-buying solution for self-employed borrowers or those without standard income documentation like payslips or tax returns.
-
Flexible income verification
You can provide on a range of alternative documents to demonstrate your ability to repay the loan.
-
Access a range of loan features
Many low doc loans still come with features like fixed or variable rates, offset accounts, redraw facilities and extra repayments.
Cons
-
Lower LVR limits
Most lenders cap LVRs at 80% for low doc loans, which means you’ll need a deposit of at least 20%.
-
Higher interest rates and fees
Rates are generally higher to compensate for the increased risk to the lender, and some lenders may charge more expensive fees for low doc lending.
-
Limited lender options
Fewer lenders offer low doc loans, which can limit your choices when shopping around for a home loan.
