What is a low-doc home loan?
Low-doc home loans—short for low documentation— allow applicants to use alternative documentation as proof of income, other than payslips and recent tax returns. These might be Business Activity Statements (BAS), older tax returns, or even an accountant’s declaration.
In the past, applying for a low-doc home loan often genuinely meant not having to provide much information. But, in the modern era, the term ‘alternative documentation’ or ‘alt-doc’ may be more accurate.
Despite needing more documentation than they once might have, these products are still seen as riskier to lenders, so often have higher rates attached and can be harder to get than regular home loans.
Who are low-doc home loans for?
Low-doc home loans are generally for borrowers who can’t prove their income with payslips or tax returns. This might mean they could work for:
- Self-employed borrowers, particularly those with relatively new ABNs
- Borrowers who rely on investment income
- Seasonal workers
- Commission-based workers
How do low-doc home loans work?
Low-doc home loans work like a standard loan, just with a different application process. They might also have stricter lending criteria. For example, maximum loan amounts or loan to value ratios (LVR) may be lower than those of a traditional home loan.
What documents do you need for a low-doc home loan?
Low-doc loans can be more flexible, but lenders remain legally obligated to verify you can afford to pay back your home loan.
Alternative documents you might be able to use to help prove your income could include:
- Bank statements from your business or personal accounts
- Details of your business, such as its name and Australian Business Number (ABN)
- Evidence of your GST registration
- Your Business Activity Statements (BAS) for the past 12 months
- Details and proof of ownership of your assets (shares, property, and the likes)
- A letter from an accountant certifying they know you and the information you’ve provided about your finances is accurate
Do you need a bigger deposit for a low-doc home loan?
Since low-doc home loans are generally considered to be higher risk, lenders will sometimes enforce higher minimum deposit requirements. Some low-doc loans only allow LVRs of up to 85%, in which case you’d need a deposit of at least 15%, plus transaction costs, to qualify.
That’s compared to traditional home loans, many of which allow for deposits as small as 5% of a property’s value.
Are low-doc home loans more expensive?
As low-doc home loans are usually seen as higher risk, rates and fees are often higher than on regular mortgages.
If applicable to your situation, lenders mortgage insurance (LMI) might also be more expensive on these loans. Some non-bank lenders charge a ‘lender protection’ or ‘risk’ fee instead of LMI, but it’s the same principle.
Low-doc home loans in Australia
Most Australian lenders offer home loans to self-employed borrowers, but generally require at least a year’s worth of tax returns or other proof of income. Often, non-bank lenders are more willing to accept alternative proofs of income.
Low-doc home loans are also often secured through mortgage brokers, who may have a better idea which lenders are likely to accept your application based on their experience in the industry.
Some of the most prominent low-doc home loan lenders include:
- Pepper Money
- Liberty Finance
- Resimac
- La Trobe
Should you get a low-doc home loan?
If you can’t provide traditional proof of income, a low-doc home loan might be your only way to get a loan to buy property. However, these products can be more expensive, and might also have stricter lending criteria.
Some borrowers who only qualify for a low-doc loan at the time they want to buy a home might be able to refinance to a conventional lender down the line. Perhaps after they’ve been self-employed for a year or two, for example. If this sounds like you, you might need to weigh up whether it’s worth paying a higher rate in the short term, remembering that your circumstances could change and you might not be able to refinance when you initially planned to.
