In the land of the ‘fair go’, small businesses are often lauded for being one of the pillars of Australia’s economy. Yet small business owners don’t necessarily get a fair go when it comes to applying for a home loan.
Given self-employed workers don’t earn a set salary in the traditional sense, it can be more of a challenge for them to prove their ability to repay a mortgage.
Fortunately, there is a type of home loan specifically designed to cater to these workers: low doc home loans.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market.
|Advertised rate||Comparison rate||Monthly repayment||Rate Type||Offset||Redraw||Ongoing Fee||Upfront Fees||LVR||Lump Sum Repayment||Additional Repayments||Pre-approval|
Prime Home Loan (LVR < 90%) (Sydney/Melbourne/Brisbane Metro only)
Standard Variable Home Loan (Principal and Interest)
Rocket Repay Home Loan (Principal and Interest)
Flex Home Loan - Alt Doc (Owner Occupied) (Principal and Interest) (LVR 85%-90%)
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 23, 2021. View disclaimer.
A low doc home loan is a low documentation home loan. It’s a home loan available to those that don’t have the correct proof of income documents available at the time or can’t get them at all.
Low doc home loans were first introduced by non-bank lenders through mortgage brokers in the late 1990s to provide an alternative to mainstream lending. These days, a fair few bigger and smaller lenders now offer low doc home loan products.
Low doc home loans are not ‘no doc’ home loans. No doc home loans were home loans that required no documentation (proof of income, employment history etc.), but following the Global Financial Crisis, they’re no longer offered by reputable lenders.
Low doc home loans are special lending products for those who might struggle to provide the standard proof of income documentation needed to apply for a home loan, such as:
The first two dot points are highlighted since these are the typical docs that self-employed people may not have.
It’s because of this that low doc home loans are primarily targeted at self-employed workers (such as small business owners, freelancers or contractors) who have no payslip records since they often don’t get a payslip or group certificate.
As the name suggests, you need less documentation than you would with a standard home loan, but you’ll still need some. Since they’re primarily geared towards business owners, you’ll likely need:
Because of the National Consumer Credit Protection Act (NCCP) Act, lenders are required to have some kind of income verification from you before they approve your loan, so unless you can provide some proof of income, you won’t be approved.
Low doc home loans used to be more common, but in recent years some lenders have stopped offering them.
For example, the following bigger lenders have either stopped offering low doc home loan products or have tightened their restrictions on them:
And these are just a select few. National Australia Bank hasn’t offered them for years. Of the big four banks, ANZ is really the only big bank that does still offer a low doc home loan product.
Since December 2010, the value of low doc residential home loans lent to households fell from $60.2 billion to $20 billion, with the number of loans falling from around 300,000 to 100,000, according to APRA statistics. They now make up less than 0.3% of overall lending per month, so they’re not a hugely popular product.
Just know that when it comes to low doc home loans, lenders might restrict applications to:
This is due to the riskier nature of low doc home loan applications. But as with all financial products, it varies from lender to lender – some providers may be willing to lend up to $2.5 million!
Generally speaking, low doc home loans don’t have interest rates that are as competitive as regular home loan rates. In most cases, they come with higher rates to compensate lenders for the higher perceived risks low-doc borrowers might pose.
At the time of writing (May 2021), there are many lenders offering home loans under 2%, which is extremely low. By contrast, the most competitive low-doc loans are generally over 3%, a full 100 basis points or more higher. At the higher end of the scale, low doc home loan interest rates can be in excess of 5.00%. So it’s still important to shop around for a good rate since there are some good ones available. Just temper your expectations and be prepared to pay more than you would with a standard home loan.
The standard home loan fees usually apply to low doc home loans too – that’s upfront and ongoing fees as well as refinancing fees or break costs for fixed loans. These fees can also be higher than normal loans although this will depend on the lender.
Instead of charging lenders mortgage insurance, some low doc loan providers might charge a risk fee (also known as a low deposit premium) to account for the added risks associated with a low deposit loan.
A positive of low doc home loans is that they can still come with the usual home loan features:
Low doc providers are less likely to accept borrowers with deposits smaller than 20%. In fact, some restrict their low doc home loans to a maximum LVR of 60%, which would require a deposit of at least 40%. This can also depend on how long you have been in business. Those who have been in business under the same ABN for over two years may be able to borrow more.
If you've been self-employed for less than two years, you may still be able to get a home loan - but there's likely to be strings attached. Some lenders may require you to have worked in your industry for longer than two years if you've only been self-employed for one year.
If you're self-employed, some lenders won't allow you to borrow any more than 60% of the value of the property. Those that do will likely charge Lenders Mortgage Insurance (LMI). However, this can all depend on how stable and reliable you can prove your income to be. Someone with a strong history of earning a reliable income running the same business for many years is likely to be able to borrow at a higher LVR than someone that's only been self-employed for a year.
The policies of different lenders may vary, but you will generally need to provide proof of income.
If you aren't earning any income at all, then unless you're flush with cash you will probably find it extremely hard to buy a house because it'll be very difficult for you to be approved for a home loan. But you can buy a house on a low income as long as you can prove you can pay off the loan, have a good credit score, and look within your means. However, there are some lenders which may accept welfare payments or insurance payments as income.
The short answer is that it's very hard to secure a home loan to buy a home if you're unemployed. This is because without a regular (or any) income, you will struggle to make the regular repayments on your loan, unless you're receiving a large welfare cheque from the government or regular insurance payments (but even then, some lenders don't accept these as valid sources of income). As income is the biggest factor that determines whether or not you get a home loan, it would be nonsensical for a lender to give someone without an income a loan.
Low doc home loans are a useful product for their target audience, but those who aren’t careful can get stuck paying higher interest rates for the life of their home loan, which is hardly ideal.
It’s possible to refinance from a low doc home loan to a full doc home loan (a standard home loan) after a few years, provided you:
If your lender allows you to do this, then switching to a full doc home loan could be much cheaper in the long-run.
Article first published 30 May 2019, last updated 25 May 2021.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.