Compare Low Doc and Self-Employed Home Loans

Self employed, low doc, or alt doc home loan?

What is a self-employed home loan?

Self-employed home loans refer to mortgage products designed for borrowers who don't earn a traditional PAYG income. These applicants may run a business, work as sole traders, operate as contractors, freelance, or rely on gig-economy income.

What is a low doc home loan?

Low doc, or 'low documentation', home loans ask applicants to provide less proof of income than traditional mortgages. They're typically marketed to self-employed borrowers and small business owners who might not have normal payslips to provide.

Low doc home loans generally come with higher interest rates than standard mortgages. They're generally available to people who may not be able to provide the two years of tax returns or financial records that a standard home loan application requires.

At a minimum, borrowers will likely still need to provide:

• Proof of income
• A letter from their accountant

For those who can supply more than two years of details, albeit not traditional paycheques, an alt doc (alternative documentation) home loan might be a closer fit.

What is an alt doc home loan?

Alt doc mortgages offer an 'alternative documentation' stream for applicants who might not earn a traditional salary. Alt doc mortgages are becoming more popular and generally require a similar amount of paperwork as a standard home loan, albeit different documentation.

Rather than payslips, they might require:

• Business Activity Statements (BAS)
• Business bank statements
• Personal tax returns
• Other documentation showing your financial fit to repay a home loan

Like low doc home loans, alt doc mortgages tend to demand higher interest rates than standard mortgage products.

They often ask that self employed borrowers have been in business for at least two years. Though, some lenders may consider borrowers with a recently registered ABN if they can demonstrate substantial industry experience or stable long-term contracting arrangements.

Who are low doc & alt doc home loans most suitable for?

Low doc loans and alt doc mortgages can suit people who don't tick the boxes of earning a regular amount of money month to month. These can include:

• Small business owners
  Operate a registered business and may draw fluctuating income from profits, dividends, or distributions.

• The self-employed
  Generate income from goods or services without a fixed employer. Manage their own tax, super, and expenses.

• People with bad credit histories or low credit scores
  Some specialist lenders that offer low doc or alt doc home loans also consider applicants with past credit issues, including late payments, defaults, or discharged bankruptcy.

Before turning to a low doc option, it's worth checking whether your business or contracting history meets standard loan requirements. Some mainstream lenders may consider applicants with stable long-term clients or industry experience.

Professions that may suit low-doc home loans

• Sole traders: Operate a business under their own name with an ABN and are legally responsible for all profits and losses.

• Subcontractors or tradies: Take on project-based work and invoice clients directly. Income often varies month-to-month.

• Freelancers: Work for clients on a project or hourly basis, invoicing for services and self-managing finances.

• Contractors: Some contractors work on fixed-term PAYG contracts and receive regular payslips. Others operate an ABN and invoice clients. Lenders may assess these groups differently, particularly when verifying income stability.

• Gig economy workers: Earn money via platforms like rideshare, food delivery, or freelance apps.

• People who earn income through investments: Generate income from rental properties, dividends, managed funds, or other assets.

1. Savings.com.au's two cents

Low doc home loans can be a useful loan product for self-employed or irregular income earners looking to enter the property market. However, borrowers should be wary of getting stuck paying higher interest rates for the life of their home loan.

Try to pursue a standard home loan before going down the path of applying for a low doc loan. A mortgage broker may be able to help you find a standard lender who is willing to consider your individual circumstances.

If taking out a low doc loan is your only option, ensure you are meticulous in making your regular repayments and maintaining a good credit record. This may equip you to refinance to a standard home loan further down the track.

How do low & alt doc lenders calculate your income?

Self-employed business owners, contractors, and freelancers often don't earn a fixed income each month, and while this can be a major hurdle to obtaining a home loan, there are generally other avenues to proving your suitability. Lenders want to determine two things:

1. Whether you're financially capable of making regular repayments towards your loan

2. If you're able to continue making repayments for the duration of the loan

To determine this, lenders may analyse:

• The type of income you earn

• Your experience in the industry (more than two years is preferred)

• The purpose of the home loan you're applying for (owner occupier or investment)

Different lenders may use different income-assessment methods, perhaps considering:

• Earnings in the most recent tax year

• An average of two years' earnings

• The lowest of two years' worth of earnings

Tips to strengthen a self-employed or low-doc application

Considering applying for a self employed home loan? Here are some strategies to help you be as prepared as possible:

• Keep your business and personal finances separate
• Maintain clean, up-to-date BAS and bank statements
• Reduce your personal debts to maximise borrowing power
• Check your credit score and work to improve it, if needed
• Consider working with a mortgage broker familiar with lender requirements

How do low doc home loans differ from standard home loans?

In addition to differences in the paperwork required, there are a few key areas where low doc or alt doc loans differ from their standard counterparts, including:

What documents are required for a low doc home loan?

Low doc lenders will generally ask to establish proof of income through a combination of Business Activity Statements (BAS), personal tax returns, and other income statements. Depending on individual circumstances, a lender might ask for:

• Proof of ABN and/or GST registration
• Business Activity Statements (BAS)
• Business Account transaction statements
• Invoices
• Accountant's letter
• Personal tax returns
• Rental income statements
• Proof of dividends or investment returns

Under the National Consumer Credit Protection Act (NCCP) Act, lenders need to carry out income verification before they can approve a loan. So, unless borrowers can provide some proof of income, they can't legally qualify.

I own a business a pay myself a wage. Do I need a self employed home loan?

Business owners who pay themselves a regular wage from their business might qualify for a standard home loan, rather than a mortgage product specifically offered to self employed individuals.

Indeed, many major lenders and big four banks are increasingly willing to consider stable incomes earned from owned businesses in home loan applications.

Why are home loans different for sole traders?

Sole traders represent a higher risk because their income might not be as stable as a PAYG applicant. To protect from defaults, banks and lenders are traditionally tougher in their assessment and will often advertise higher interest rates or borrowing limits for sole traders and small business owners.

Why are home loans different for contractors?

Contractors can represent a higher risk to a mortgage lender as their income might not be as stable as other applicants, even though the relative instability is often made up for by a higher income. To protect themselves from defaults, banks are traditionally tougher in their assessment and will often offer higher interest rates or lower borrowing limits to contractors.

Which lenders offer low doc loans?

There are a number of low doc lenders on the market including:

• Reduce Home Loans
• Resi
• Liberty
• Pepper Money
• La Trobe Financial
• Bluestone Mortgages

A mortgage broker specialising in low doc loans may be able to match you up with a loan to best suit your individual circumstances.

Can you refinance a low doc loan?

You can refinance a low doc loan for all the same reasons that many borrowers seek to refinance, such as:

• Switching to a lower interest rate
• Accessing equity in their property
• Taking advantage of better loan features

Ideally, a low doc home loan should be viewed as a shorter-term loan until you are in a position to apply for a regular home loan with a lower interest rate. But to do that, you'll need to show you:

• Have consistently met your loan repayments
• Have maintained a clean credit history
• Can provide appropriate proof of income

Of course, switching loans will come with the usual fees and expenses, so you'll need to weigh up the pros and cons of refinancing. However, as a general rule, switching to a standard home loan could potentially save you thousands of dollars in interest over the course of your home loan.

See also: Refinance Home Loan Calculator