Low Doc Loans
Low doc and non-conforming loans can be your gateway to securing a home loan when traditional lending criteria don’t fit your situation. Discover the pros and cons here.
What is a Low Doc Home Loan?
Low-doc or no-doc mortgages are ideal for investors or self-employed borrowers who need to refinance, purchase, or renovate a property.
Because the income verification relies on alternative documentation rather than conventional methods, lenders often see low doc loans as higher risk. As a result, these loans usually come with higher-than-average interest rates and may have more restrictions on the maximum Loan to Valuation Ratio (LVR), available loan features, and potential package discounts.
What documents will I need?
A self-employed borrower would typically need to provide proof of income using a combination of the following:
- Proof of ABN and/or GST registration
- Business Activity Statements (BAS)
- Business Account transaction statements
- Accountant’s letter
- Personal tax returns
Before applying for a Low Doc home loan, it’s worth sitting down with an experienced mortgage broker to work out your net income and the amount of loan you can realistically afford to service on a regular basis. Doing this could help to avoid disappointments, plus you could also uncover more lenders or product choices which you were not previously aware of.
What Are the Pros & Cons of Low Doc Loans?
Pros:
- Simple income declaration form
- Alternatives to tax returns as income evidence are available
- Fully serviceable loan options, redraws, line of credit, variable or fixed rates
- Principal & Interest or Interest-only loans
Cons:
- Generally a higher interest rate and potentially fewer features
- Not every bank or lender offers low doc loans
- Can incur risk fees
Who Should Consider a Low Doc Loan?
Self-Employed Individuals: Running your own business often means not having the standard documentation, like 1-2 years of tax returns, that traditional lenders require. Low doc loans provide a pathway to homeownership with alternative income verification, making it easier to get the funding you need. To estimate your monthly payments, you can use a Loan Repayment Calculator.
Freelancers and Contractors: If you have a fluctuating income or work on short-term contracts, proving consistent income can be a challenge. Low doc loans simplify the process by offering flexible options for securing financing without extensive paperwork.
Property Investors: For those relying on rental income or juggling multiple income streams, low doc loans can be a practical solution. These loans accommodate various forms of income verification, helping investors expand their portfolios with ease.
Eligibility Criteria for a Low Doc Loan
To qualify for a low-doc home loan, borrowers still need to demonstrate a steady income, but with less documentation than traditional loans. Here’s what you can expect:
- Self-Employment Duration: Typically, you need to be self-employed in the same industry for at least a year. Some of our lending partners may consider as little as six months if you have prior employment in the same field for at least 12 months. For the most competitive loan options, 24 months of self-employment may be required.
- Active ABN: Your ABN should be active or GST-registered for at least six months. However, some lenders may require it to be active for one to two years.
- Alternative Income Verification: Low-doc loans accept alternatives to traditional income proof, such as BAS statements, business bank statements, or accountant declarations. Lenders usually need 6-12 months of BAS to assess your income.
- Refinancing Requirements: For low-doc refinancing, having a clean credit file with no dishonours or arrears in the past three months is essential.
- Varied Lender Policies: Different lenders have different policies and criteria. The maximum Loan-to-Value Ratio (LVR) without Lenders Mortgage Insurance (LMI) is determined on a case-by-case basis, depending on the strength of your application.
Common Reasons Borrowers Choose Low Doc Loans
Many Australians turn to low doc loans for reasons beyond just self-employment. Here are a few situations where these loans offer a practical advantage:
New Business Owners: Recently started your own business and don’t yet have two full years of tax returns? Low doc loans can help bridge the gap to homeownership or investment.
Irregular Income: Some professions, such as artists, consultants, and commission-based roles, don’t have predictable monthly pay. These borrowers benefit from the flexibility of alternative income documentation.
Asset-Rich, Cash-Flow Poor: If your wealth is tied up in property, shares, or other assets, but you don’t show strong income on paper, a low doc loan may still allow you to leverage your equity effectively.
Seasonal or Project-Based Work: Industries like agriculture, construction, and creative sectors often experience income peaks and troughs. Low doc loans provide an alternative path for these workers.
How to Strengthen Your Low Doc Loan Application
Practical Steps to Improve Approval Chances
While low doc loans are designed for flexibility, you can still take steps to boost your chances of approval and access better rates:
Maintain Clear Financial Records: Even if you don’t have tax returns, ensure your BAS, bank statements, and accountant letters are consistent and accurate.
Demonstrate a Strong Savings History: Showing discipline with your savings or regular rental payments can support your ability to service a mortgage.
Have a Larger Deposit: The higher your deposit, the lower your risk to the lender. A deposit of 20–30% can increase your access to more lenders and reduce the chance of needing Lenders Mortgage Insurance (LMI).
Use a Specialist Mortgage Broker: Not all lenders publicly advertise their low doc loan options. A broker experienced in non-conforming loans can connect you with niche lenders and negotiate terms on your behalf.
Comparing Low Doc Loan Products: What to Look For
When shopping for a low doc loan, consider the following features:
Interest Rates: Rates may vary widely between lenders. Some non-bank lenders offer competitive deals tailored to your situation.
Loan Features: Access to redraw, offset accounts, or extra repayments may differ depending on the lender.
LVR Limits: Some lenders cap the LVR at 60%, while others may allow up to 80% with or without LMI.
Repayment Options: Look for flexibility—such as the ability to choose interest-only repayments during leaner periods.
Turnaround Times: Some lenders specialise in fast loan approvals, a bonus if you’re under contract to buy.
Frequently Asked Questions
What is the minimum deposit for a low doc home loan in Australia?
Most lenders require a minimum deposit of 20% for low doc loans, although some may allow up to 80% LVR with Lenders Mortgage Insurance (LMI). A larger deposit can improve your chances of approval and reduce your interest rate.
Can I get a low doc loan with bad credit?
Yes, some non-conforming and specialist lenders offer low doc loans for borrowers with impaired credit histories. However, you may face higher interest rates and stricter lending criteria.
How long do I need to be self-employed to qualify for a low doc loan?
Generally, lenders prefer at least 12 months of self-employment with an active ABN. Some may accept six months if you were previously employed in the same industry, while others require two years for better loan terms.
Do I need to provide tax returns for a low doc loan?
No. Low doc loans are specifically designed for borrowers who can’t provide full tax returns. You can use alternative income verification such as BAS statements, accountant declarations, or business bank statements.
Are low doc loans more expensive than regular home loans?
Low doc loans typically come with higher interest rates and may include risk fees, due to the perceived higher lending risk. However, competitive options are available if your financial profile is strong.
Can I refinance an existing mortgage with a low doc loan?
Yes, refinancing with a low doc loan is possible, especially if you’re self-employed and can demonstrate your income using alternative documentation. Clean credit history and equity in your property will strengthen your application.
Which lenders offer low doc home loans?
Low doc loans are usually offered by specialist or non-bank lenders rather than the big four banks. A mortgage broker can help match you with the right lender based on your income, documentation, and goals.
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