Self-employed and low doc home loans: what lenders really look at
Being self-employed does not stop you getting a home loan, but it does change how your income is judged. The same business can look strong to one lender and risky to another, so knowing which loan type fits your paperwork often matters more than the rate you see advertised.
Why self-employed applications feel harder
An employee can show a payslip. A business owner's income can move from year to year, and much of it may sit in a company or trust. Lenders still have to be satisfied that you can repay, so they look for evidence that your income is real and stable.
The most common surprise is that sensible tax planning reduces the income a lender can see. Lower taxable income can mean a lower borrowing figure, even when the business is doing well.
Full doc: the usual starting point
If your tax is up to date, a full doc loan is usually the place to start, because it tends to offer the widest choice of lenders. Requirements vary, but lenders commonly ask for:
- Personal and business tax returns, often for the last two years.
- ATO Notices of Assessment.
- Company or trust financial statements, where relevant.
- Business Activity Statements and recent bank statements.
Some lenders may accept one year of financials or add back certain expenses, such as depreciation. These policies differ widely, which is why two lenders can give you very different borrowing figures from the same paperwork.
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Low doc: when your tax returns are not ready
A low doc loan lets you show income with alternative evidence when your latest tax returns are not available. It does not mean no checks: the lender must still be satisfied that you can afford the loan.
Depending on the lender, alternative evidence can include:
- Business Activity Statements, commonly covering 6 to 12 months.
- Business bank statements.
- A letter or declaration from your accountant, where the lender accepts one.
- Your own signed income declaration.
Many lenders look for an ABN that has been active for about 12 to 24 months, and some specialist lenders will consider less. Criteria change, so treat these as a guide and not a rule.
Only declare income you can genuinely support. Overstating income on a loan application is serious, and it can leave you with repayments you cannot afford. Be wary of anyone who suggests inflating the figures.
The trade-offs of low doc
- Rates and fees are often higher than a comparable full doc loan.
- You may need a bigger deposit. Maximum loan-to-value ratios are commonly around 80%, and can be lower for investment loans.
- Fewer lenders offer it, and many of them are non-bank lenders.
- It can be a stepping stone. Once your tax returns are lodged, you may be able to refinance to a full doc loan.
How to prepare before you apply
- Talk to your accountant and your broker before lodging your next return, especially if you plan to buy within a year or two.
- Bring your tax and BAS lodgements up to date. Outstanding ATO debt needs to be explained.
- Keep business and personal spending in separate accounts.
- Pay down credit cards and reduce limits you do not need. Limits count against you even when the balance is zero.
- Avoid several credit applications close together.
Example: two loans from the same paperwork
Imagine a tradesperson who has held an ABN for three years, with strong BAS but tax returns that are a year behind. On the current paperwork, full doc lenders may only see older, lower income. They could choose a low doc loan now and accept the trade-offs, or lodge their returns first and apply for full doc later. Neither is right for everyone: it depends on timing, deposit and the cost difference. This is a general example, not a real client.
Frequently asked questions
Can I get a home loan with less than two years of self-employment?
Possibly. Some lenders consider a shorter history, particularly if you have worked in the same industry before, although options are narrower and the terms may be less favourable.
What is the difference between low doc and no doc?
Low doc means you provide alternative evidence of income. Lenders still need to be satisfied that you can repay, so you should not expect to get a home loan with no evidence at all.
Will a low doc loan always cost more?
It often does, through a higher rate or fees, but it depends on the lender and your position. Compare the total cost, and consider whether you could refinance once your tax returns are lodged.
Should I reduce my tax deductions before applying?
That is a question for your accountant. Tax planning and borrowing can pull in opposite directions, so it is worth having your accountant and broker look at it together before you lodge.
Helpful tools & guides
This article is general information only and does not take into account your objectives, financial situation or needs. It is not tax advice. Lender criteria, documentation requirements and loan-to-value limits vary between lenders and change over time. All loans are subject to lender approval.