Low doc (low documentation) home loans are designed for self-employed borrowers and business owners who can't provide standard tax returns and financials. This comprehensive guide explains how low doc loans work and how to get approved.
What is a Low Doc Home Loan?
Low doc loans require less financial documentation than standard home loans.
Who needs low doc: ✅ Self-employed individuals ✅ Business owners ✅ Contractors and freelancers ✅ Commission-based workers ✅ Those with complex income structures ✅ Recently self-employed (< 2 years)
Why use low doc:
- Can't provide 2 years tax returns
- Legitimate tax minimization strategies
- Income not reflected in tax returns
- Business expenses reduce taxable income
- Don't have accountant-prepared financials
Key difference:
- Standard loan: 2 years tax returns + financials
- Low doc loan: Alternative income verification
Low Doc Loan Rates & Costs 2025
Interest rates slightly higher than standard:
Low doc rates:
- Owner-occupied: 6.0-8.5% p.a.
- Investment: 6.5-9.0% p.a.
- Premium to standard: +0.5-2.0% p.a.
Comparison:
- Standard home loan: 5.9-6.5% p.a.
- Low doc home loan: 6.5-8.5% p.a.
- Additional cost: ~1% p.a.
Fees:
- Application fee: $0-$1,000 (same as standard)
- Valuation: $300-$800
- LMI (if LVR > 80%): Can be higher than standard
- No special "low doc fees" usually
Is low doc worth the extra cost?
Example $600,000 loan:
- Standard loan @ 6.2% = $3,685/month
- Low doc loan @ 7.2% = $4,079/month
- Extra cost: $394/month ($4,728/year)
Worth it if: ✅ You can't qualify for standard loan ✅ You need to borrow more than standard would allow ✅ Your business income grows but tax returns don't show it yet
How Low Doc Loans Work
Alternative Income Verification
Instead of full tax returns, lenders accept:
1. Accountant's Letter
- Most common method
- Letter from qualified accountant
- States your income for last 1-2 years
- Accountant takes liability
2. BAS Statements
- Business Activity Statements
- Shows business turnover
- Recent 6-12 months
- Lender calculates income from turnover
3. Bank Statements
- Personal and business accounts
- Recent 3-12 months
- Shows regular income deposits
- Lender assesses average income
4. Notice of Assessment (NOA)
- Latest tax assessment from ATO
- Shows last lodged tax return
- Can use 1 year instead of 2
5. Self-Declared Income
- Becoming rare
- Simply declare your income
- Higher rates, lower LVRs
- Sign self-declaration form
Loan to Value Ratios
Low doc LVRs are more conservative:
Standard loans:
- Up to 95% LVR (with LMI)
- First home buyers: up to 95%
- Investors: up to 90%
Low doc loans:
- Maximum 90% LVR (usually)
- Most common: 80% LVR
- Some lenders: 60-70% max
- Higher deposit = better rate
Example $700,000 property:
- 80% LVR: Borrow $560k, deposit $140k ✅ Best rates
- 90% LVR: Borrow $630k, deposit $70k Note: Higher rates + LMI
- 95% LVR: Usually not available for low doc
Serviceability Assessment
Lenders still assess if you can afford repayments:
Standard loan serviceability:
- Use taxable income from returns
- Apply living expenses
- Factor in other debts
- Calculate maximum borrowing
Low doc serviceability:
- Use declared/verified income
- Apply higher living expense buffer
- Conservative assessment
- May borrow less than standard
Example:
- Business turnover: $300,000
- Taxable income: $80,000 (after expenses)
- Standard loan: Based on $80k
- Low doc loan: Based on $150-200k (estimated profit)
- Result: Can borrow more with low doc!
Bank vs Non-Bank Low Doc Lenders
Major Banks
Availability:
- Most major banks offer low doc
- ANZ, Westpac, NAB all have options
- Tighter criteria than non-banks
Requirements: ✅ ABN for 2+ years ✅ Good credit score ✅ Accountant's letter or BAS ✅ Lower LVRs (usually 80% max) ✅ Evidence of business
Rates: 6.0-7.5% p.a. (competitive)
Approval time: 2-4 weeks
Non-Bank Lenders
Availability:
- More flexible
- Specialist low doc lenders
- Accept varied documentation
Requirements: ✅ ABN for 6-12 months (sometimes) ✅ Flexible credit ✅ Alternative income verification ✅ Higher LVRs possible (up to 90%)
Rates: 6.5-9.0% p.a.
Approval time: 1-3 weeks
Private Lenders
Most flexible:
- Accept very low documentation
- Asset-based lending
- Credit issues OK
Requirements: ✅ Equity in property (usually 20-40%) ✅ Exit strategy ✅ Property value focus
Rates: 8-15% p.a.
Approval time: 3-10 days
Low Doc Loan Requirements
What you'll need to apply:
Essential Documents
Proof of income (ONE of): ✅ Accountant's letter (income for 1-2 years) ✅ BAS statements (6-12 months) ✅ Bank statements (6-12 months) ✅ Latest tax return/NOA
Business verification: ✅ ABN registration (usually 2+ years) ✅ GST registration (if applicable) ✅ Business bank statements ✅ Evidence of trading (invoices, etc.)
Personal documents: ✅ Photo ID (license or passport) ✅ Proof of address ✅ Personal bank statements ✅ Asset/liability statement
Credit Requirements
Credit score matters:
- Good (650+): Access to banks, best rates
- Fair (550-650): Non-banks, reasonable rates
- Poor (<550): Private lenders, higher rates
Credit issues:
- Defaults: May be OK if paid, depending on size/age
- Bankruptcy: Usually 2-3 years discharged minimum
- Court judgments: Case-by-case
- Multiple applications: Avoid within 6 months
Deposit Requirements
Minimum deposit by lender type:
Banks:
- 20% deposit (80% LVR) = best rates
- 10% deposit (90% LVR) = LMI required, limited banks
Non-banks:
- 10-20% deposit (80-90% LVR)
- LMI required if > 80%
Private:
- 20-40% deposit (60-80% LVR)
- No LMI but higher rates
Accountant's Letter for Low Doc
Most popular low doc method:
What the Letter Must Include
Accountant must state: ✅ Your full name and ABN ✅ Period they're certifying (last 1-2 years) ✅ Your gross income for the period ✅ Your net profit/income ✅ That you're a current client ✅ Their qualification and membership number
Example letter format:
To Whom It May Concern,
I confirm that John Smith (ABN 12 345 678 901) has been a client of our accounting practice since July 2021.
For the financial years ending June 2023 and June 2024: - FY2023: Gross income $180,000, Net profit $95,000 - FY2024: Gross income $210,000, Net profit $115,000
John operates a successful electrical contracting business and the income stated above represents his share of business profits.
Signed, Jane Accountant CPA ABC Accounting Pty Ltd CPA Member: 123456 Date: 15 January 2025
Accountant Requirements
Lender requirements: ✅ Must be qualified (CPA, CA, or registered tax agent) ✅ Current practicing certificate ✅ Not related to you ✅ Professional indemnity insurance ✅ Established practice (not brand new)
Finding an accountant:
- Ask your current accountant
- Low doc brokers often have relationships
- CPA Australia or CA ANZ directories
Cost: Usually $150-$500 for the letter
Low Doc vs Alt Doc vs Full Doc
Understanding the differences:
Full Doc Loans (Standard)
Documentation:
- 2 years full tax returns
- 2 years financial statements
- Accountant-prepared financials
- Detailed income verification
Rates: 5.9-6.5% p.a. (best) LVR: Up to 95% Best for: PAYG employees, established businesses with clean tax returns
Low Doc Loans
Documentation:
- Accountant's letter OR
- BAS statements OR
- Bank statements
- Lighter verification
Rates: 6.5-8.5% p.a. LVR: Up to 90% (usually 80%) Best for: Self-employed who can't/won't provide full tax returns
Alt Doc Loans (Alternative Documentation)
Documentation:
- Alternative income verification
- More creative solutions
- Multiple income sources
- Rental income, dividends, etc.
Rates: 6.5-9.0% p.a. LVR: Up to 85% Best for: Complex income, multiple sources, non-traditional
No Doc Loans (Mostly Gone)
Documentation:
- Minimal or none
- Self-declared income
- No verification
Status: Largely disappeared after 2008 Still available from private lenders (8-15% p.a., 60-70% LVR max)
Common Low Doc Mistakes to Avoid
1. Applying for Full Doc First
Full doc application gets declined Now has declined credit application on file Harder to get low doc approved
✅ Solution: Know which product you need before applying
2. Insufficient Business History
ABN less than 12 months old Can't verify ongoing income Limited lender options
✅ Solution: Wait until 12-24 months trading, or consider guarantor
3. Poor Record Keeping
Can't provide bank statements Business and personal funds mixed Irregular income deposits
✅ Solution: Separate business accounts, regular banking
4. Overestimating Income
Accountant letter shows inflated income Can't service the loan May constitute fraud
✅ Solution: Be realistic, conservative income estimates
5. Not Shopping Around
First lender offers 8.5% Didn't compare other options May have qualified for 7%
✅ Solution: Use broker, compare 3-5 lenders
Refinancing to Full Doc Later
Low doc is often a stepping stone:
Strategy:
Year 1-2: Low Doc Loan
- Get approved with accountant letter
- Rate: 7.5% p.a.
- Start building tax return history
During Low Doc Period:
- Lodge full tax returns
- Build 2 years history
- Maintain good repayment record
- Improve credit score
Year 2-3: Refinance to Full Doc
- Now have 2 years tax returns
- Qualify for standard loan
- Rate: 6.2% p.a.
- Save 1.3% on rates!
Savings example $500k loan:
- Low doc @ 7.5%: $3,496/month
- Full doc @ 6.2%: $3,075/month
- Save $421/month ($5,052/year)
Tips for Low Doc Loan Success
Before you apply:
- Choose right documentation method - Accountant letter usually best
- Get ABN early - Need 12-24 months trading history
- Clean up credit - Pay defaults, avoid new applications
- Bigger deposit better - 20%+ gets best rates
- Organize finances - Separate business/personal banking
During application: 6. Be honest - Don't overstate income 7. Use a broker - They know low doc lenders 8. Prepare all docs - Have everything ready 9. Explain your business - Help lender understand income 10. Timeline - Allow 2-4 weeks for approval
After approval: 11. Make repayments on time - Builds future borrowing power 12. Lodge tax returns - Build full doc history 13. Plan to refinance - To full doc when eligible 14. Maintain good credit - For future applications
Need a Low Doc Home Loan?
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