What are low-doc loans and who are they for?

For many self-employed borrowers, securing a home loan can be challenging due to the lack of traditional financial documentation such as payslips and tax returns. Low-doc (low documentation) loans provide an alternative pathway, allowing these borrowers to prove their income using different forms of financial evidence.

Instead of full financial statements, lenders typically accept business activity statements (BAS), bank statements and accountant declarations to assess a borrower’s ability to repay the loan. However, these loans often come with stricter lending conditions, including higher deposit requirements – usually at least 20% – and potentially higher interest rates to offset the perceived risk to the lender.

When should a low-doc loan be considered?

Low-doc loans aren’t a first-choice solution, but they can be useful in specific situations, such as:

• Recently self-employed borrowers who don’t yet have two years of tax returns but have a stable income.
• Business owners with irregular income who don’t meet standard loan assessment criteria.
• Clients who minimise taxable income for tax purposes, making traditional income verification difficult.
• Investors who need quick financing but don’t have up-to-date financial statements.

Credit requirements and deposit considerations

Low-doc loans don’t have a universal minimum credit score; instead, lenders assess each borrower’s risk profile individually. A good credit score helps secure better terms, but lenders also consider factors like deposit size and financial stability. In most cases, a higher deposit – typically 20-30% – is required compared to standard home loans.

To improve borrowing options, clients can take proactive steps to strengthen their credit profiles, such as making timely payments, reducing credit card balances and limiting new credit applications. Checking credit reports for errors and maintaining a strong financial history can also help improve lending outcomes.

Finding the right loan solution

While low-doc loans are available – particularly through non-bank lenders that specialise in working with self-employed borrowers – they should only be considered when other options aren’t viable, due to the higher interest rates and fees. Each lender has different requirements, so exploring various lenders is key to finding a suitable loan.

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