Low Doc Home Loan Guide for the Self-Employed

Key takeaways

• Verification is by accountant declaration, BAS or bank statements - not tax returns.
• Maximum LVR is typically 80%, and often 70-75% with some lenders.
• Expect a rate premium over a full-doc loan, and LMI above 80% where available.
• It is a documentation category, not a bad-credit product.

Who genuinely needs one

A low doc loan suits a self-employed borrower who is earning enough but cannot evidence it with two years of lodged tax returns. It is a documentation category, not a concession for weak income or impaired credit.

• Recently self-employed - trading twelve to twenty-four months, with no two-year history to show.
• Returns not yet lodged - common where an accountant is behind, or the financial year has just closed.
• Deductions understate income - depreciation, one-off write-offs or genuine business expenses that reduce taxable income well below actual cash flow.
• Complex structures - trusts and multiple entities where profits are distributed in ways a standard assessment does not capture.

If your returns are lodged and current, you almost certainly do not need one - a full doc application will be cheaper and will allow a higher LVR. It is worth understanding how lenders assess self-employed income first, because the add-backs a lender accepts often lift a full doc application over the line without any premium at all.

What you provide instead

Instead of two years of lodged tax returns, you provide an accountant's declaration, business activity statements, business bank statements, or evidence of ABN and GST registration. Most lenders want at least two of these together - one on its own is rarely enough any more.

Most lenders want at least two of these, not one. The declaration alone is rarely enough on its own any more.

What it costs

The premium varies by lender and LVR. As an indication of shape rather than a quote, on a $600,000 loan over 30 years:

A common strategy is to take the low doc loan now and refinance to full doc once two years of returns exist - the premium becomes a bridge rather than a permanent cost.

Frequently asked questions

Is a low doc loan the same as a no doc loan?

No. No doc lending, where a borrower simply stated income with no supporting evidence, effectively disappeared after responsible lending obligations. Low doc still requires verification - just a different form of it.

Can I get LMI on a low doc loan?

Some lenders offer it above 80% LVR, but the pool is much smaller and premiums are higher. Most low doc lending sits at or below 80%.

How soon can I refinance to a normal loan?

Once you have two years of lodged returns showing sufficient income, usually. Twelve months of clean repayment history on the low doc loan also helps the new lender.

Related reading

• Why Home Loan Applications Get Declined: The Top 12 Reasons
• Financial Hardship: Your Rights Before You Miss a Payment
• Break Costs on Fixed Loans: How They Are Calculated

Sources

• Responsible lending conduct, RG 209 — ASIC
• Business activity statements — Australian Taxation Office