What Are Low Doc Loans In Australia?

Self-employed? Do not let your lack of financial documents stop you from purchasing, renovating, or refinancing a property. Low Doc Loans help self-employed and small business borrowers to take out a loan with minimal requirements.

Low Doc Loans Explained

Low documentation loans (or low doc loans) are a type of loan designed to allow borrowers with limited financial records to borrow with minimal requirements. Typically, these borrowers are self-employed, small business owners, and investors who have not yet filed their tax returns or failed to meet the full doc loan requirements.

Note: Given the flexibility of requirements for low doc loans, lenders view this loan as high risk. Therefore, low doc loans tend to have higher interest rates, risk fees, and may include terms that restrict borrowers.

It is best to talk to an expert mortgage broker to know your options.

Low Doc Loans vs Traditional Home Loans vs Mid Doc Loans

Confused on whether you should get a low doc loan, traditional home loan, or a mid-doc loan? Typically, it comes down to your ability to provide financial documents.

Traditional home loans or full doc loans generally have better interest rates and terms—if you can comply with the requirements. If not, you may need to consider low doc loans or mid-doc loans.

Below is a comprehensive summary of their differences.

	Traditional Home Loans (Full Doc Loans)	Low Doc Loans	Mid-Doc Loans
Income Verification	Extensive, typically 1 to 2 years’ financial records (payslips, tax returns, employment contracts, etc.)	Reduced (income declaration form with self-verification and other supporting documents)	Mid-Doc (Recent BAS, ABN, or business bank statements)
Target Borrower	PAYG employees, individuals with stable income, or self-employed applicants with lodged tax returns that are within lending guidelines	Self-employed, contractors, freelancers, or small business owners	Self-employed, contractors, freelancers, or small business owners
Perceived Lender Risk	Low	High	High
Interest Rates	Lowest rate	Depends on the application but is generally higher than traditional	Typically, lower than low doc loan
Fees	Standard home loan fees	Higher and may include risk fees	Higher and may include risk fees
Availability	Available from directly from lenders, other institutions, or mortgage brokers	Typically, you can apply directly to lenders or mortgage brokers	Typically, you can apply directly to lenders or mortgage brokers

Key Advantages of Low Doc Loans

While it is generally considered that low doc loans have higher interest rates, several factors make this ideal for certain borrowers.

Loan accessibility for self-employed and non-traditional income workers – low doc loans make it possible for borrowers to purchase and own properties with less income verification documents.

Flexibility with documentation – when your recent financial documents do not reflect your current financial status, low doc loans allow you to submit other documents that prove your income.

Quicker approval process – the low documentation requirements sometimes allow for a faster approval process. As a borrower, this gives you a quicker turnaround time to secure your property.

Tailored financial solutions to your financial situation – generally, lenders expect low doc loan borrowers to have complex financial situations. They tend to provide financial loan solutions that consider your overall financial health and repayment capacity.

Who is qualified for Low Doc Loans?

Eligibility requirements for low doc loans may vary from lender to lender. Typically, these borrowers are ABN holders who are registered for GST.

Below are the common borrowers who are looking for low doc loans:

Self-employed, contractors, and freelancers – having a history of being a PAYG employee in the same industry will have a higher chance of getting loan approval.

Small business owners – new businesses may experience income fluctuations. Inconsistency in income can make it difficult for you to get approved for a traditional home loan.

Low credit score borrowers – for borrowers who do not have a good financial standing. Finding an accountant who will be willing to sign off on your loan through an account declaration might give you a chance of approval.

What are the requirements for Low Doc Loans?

Your lender may require any of the following documents to prove your eligibility:

Proof of identification, Proof of ABN and GST registration, Recent personal tax return and notice of assessment, PAYG payment summary, Business activity statement (BAS), Business bank account statements, Financial statements executed by an accountant