Home loans for self employed borrowers

Self Employed Borrowers – Low doc home loan options

Rates and fees last updated on

Want the loan but can’t provide the financials because you are self employed? There are loans still available for you.

If you want a home loan, or any other financial product like a credit card or a personal loan, you're going to need to verify your financial details with the lender before you can access credit. For most of us, records of our employment and salary are obtained easily enough, but for the self-employed, showing business financials can be difficult.

A lender will want to know as much as they can about an applicant before they approve a loan for many hundreds of thousands, if not millions of dollars.They want to see information about how much you earn, whether you've been steadily employed or whether you have a history of making regular deposits into a savings account. This information helps a lender decide whether you're going to be able to service the loan now and into the future.

This is where the self-employed can run into trouble. Providing tax returns and financial statements can take time to organise and sometimes the information self-employed applicants have on hand doesn't fit with regular loan application guidelines. But that doesn't mean the self-employed can't get a loan. A low documentation (low-doc) loan is a product designed to cater to self-employed applicants.

Compare low documentation loans

Rates last updated October 22nd, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
4.74%
4.74%
$0
$0 p.a.
80%
A competitive rate for low doc borrowers. Comes with offset account and no monthly or annual fees.
5.41%
5.75%
$0
$0 p.a.
80%
Fix a competitive rate for one year with Homeloans.com.au.
6.86%
7.05%
$995
$10 monthly ($120 p.a.)
80%
Self-employed? Get a home loan to suit your needs.
5.74%
5.78%
$0
$0 p.a.
80%
A low doc home loan with a 100% offset account and flexible repayment options.
5.17%
5.45%
$375
$15 monthly ($180 p.a.)
80%
A low doc loan with a fixed rate for one year and 100% offset account.
5.39%
5.60%
$375
$15 monthly ($180 p.a.)
70%
A low doc home loan with 100% offset account and redraw facility.
5.22%
5.36%
$600
$8 monthly ($96 p.a.)
80%
Standard variable home loan with a low doc option for self-employed borrowers.
5.25%
5.46%
$375
$15 monthly ($180 p.a.)
80%
Enjoy a low doc variable rate home loan with offset account.

Have we missed anything in the comparison table? Tell us

Compare up to 4 providers

What is a low-doc home loan?

A low documentation home loan offers credit to people working for themselves, who otherwise wouldn't be able to meet the full documentation loan application requirements. As the name suggests, a low-doc loan is low on paperwork. Different lenders have different application requirements, but generally you'll only need to supply a signed Borrower Certificate of Income Declaration Form, Business Activity Statements (BAS) and tax returns (if you have them). Some will happily allow you to self-declare your business income and ask for no other forms of income verification besides checking that your Australian Business Number (ABN) or Australian Company Number (ACN) has been registered for more than two years and is also registered for GST. The GST requirement ensures that the business is profitable. Any self-employed sole trader or small business owner who is registered for GST must have a business turnover of at least $75,000. So, the bank already knows the income is there. It's just not being verified via financial statements or tax returns.

The majority of low-doc loans are limited to a slightly lower than normal loan to value ratio (LVR). This often means you'll need a larger deposit or higher amounts of equity to qualify. For instance a full documentation loan may have an LVR of 80%, whereas a low-doc loan will have an LVR of 60%. The LVR signifies the percentage of the loan you are allowed to borrow without having to pay lender's mortgage insurance.

Who is classified as self employed for a Low Doc Home Loan?

Any self-employed borrower who is unable to qualify for a traditional home loan can be classified as a low-doc borrower, some banks will also classify self-funded investors as low-doc borrowers too. A company or trust will also often consider a low-doc loan over a full-doc loan to reduce the paperwork involved in the loan application. Full-doc loans for a company or trust may require two full years of financial statements and tax returns for the borrowing entity, in addition to two full years of tax returns for the individual as well. In this case, opting for a low-doc mortgage can reduce the red tape involved in the application, but it's at the cost of a low-doc home loan premium.

Low doc home loans

Can I apply for a self-employed low doc loan?

Anyone can approach their regular bank and enquire about a self-employed low-doc loan. However, not all banks or lenders are responsive to these requests. Like all applications, there's no guarantee your request for credit is going to be accepted. A failed application will show up as an enquiry on your credit history. Lenders see multiple enquiries in a short space of time as a troubling sign.

This is where it's important to discuss your specific needs with a mortgage broker, preferably one who is experienced in dealing with self-employed borrowers. A good broker will know which lending institutions are most likely to be lenient with low-doc loans and which institutions to steer clear from. They'll also know which lenders will allow you to self-declare your income and which ones may still want to see limited amounts of paperwork and documentation to verify your income.

Of course, there are still some non-conforming lenders that will allow you to apply for low-doc mortgages, even if your ABN has been registered for less than the usual two years. A good mortgage broker will know which lenders can overlook this requirement.

What are the loans available to a self-employed borrower?

Self employed borrowers can get access to the same type of loans that are available to full-doc borrowers. These can include:

  • Variable Rate
  • Fixed Rate
  • Construction Loans
  • Line of Credit

Pros and cons of self-employed home loans

As with any mortgage, there are some very definite pros and cons with self-employed low doc home loans

Pros:

  • Documentation: Low-doc loans require that significantly less documentation is provided in order to verify sole trader income or business turnover.
  • Faster Application Process: As there is a low-documentation requirement, you'll save time tracking down your financial statements, tax returns, BAS statements and other verification from your accountant. This lets you get your application submitted much faster.
  • Convenience: The ability to forego all the mountains of paperwork required to verify a traditional self-employed loan is very convenient for a busy self-employed person running a business. If you can find a lender willing to accept a self-certification for your income, or maybe just showing your last few BAS, this is much easier than providing mountains of paperwork.
  • Convert to Full Doc: Many lenders will allow low-doc borrowers to convert their self-employed home loan over to a full-doc loan after a period of time without asking for financial verification. In most cases this is after two or three years and only if the loan repayments have been made on time throughout that period. Converting the loan over to full-doc can often mean a slight reduction in interest rate.

Cons

  • Lower LVR: Many banks will limit the amount of money you're able to borrow against the value of the home you're buying or using as security. Instead of being able to borrow up to 95% of the property value, as a full-doc borrower can, a low-doc borrower is often limited to borrowing 60% of the property value. Some lenders will extend this up to a potential 80%, but may charge LMI for any LVR over 60% which increases your mortgage costs.
  • Higher Interest Rate: Many lenders view low doc loans as being riskier than fully verified loans. For this reason, they may charge a slightly higher interest rate as compared to a regular mortgage for a borrower. This is known as a low-doc interest rate premium. There is still the possibility that many lenders can revert the loan over to a full doc loan after a period of time, as long as all the payments have been met.
  • Fewer Lender Options: Not every bank or lending institution will accept home loans from low-doc borrowers. Aside from this, some lenders will still require more documentation than others when trying to verify a low-doc home loan. This limits your options and makes it more difficult to negotiate for better deals on interest rates.
low doc home loan paperwork

What documents do I need to apply for a low-doc loan?

The level of documentation you need to submit with an application for a self-employed home loan can vary widely between different lenders. However, here is a guide to help you work out what you might need:

Income verification

Big banks will ask that self-employed borrowers provide two full years' worth of financial statements, including tax returns, profit and loss statements and often the last two or three BAS as well. If you have other income such as investment income, you may also be asked to provide this as well. However, there are low doc lenders available that may only ask for your last three or four BAS and little else.

There are also some lenders that will be happy for you to self-certify your income. This is where you sign a certification that you do earn sufficient income to comfortably afford the repayments on the loan amount you're applying for. You may be asked to provide your accountant's contact information to confirm this.

Asset verification

When banks consider low-doc home loan applications, they do assess what level of equity and assets you have available. For this reason, some lenders may ask you to provide copies of your Council Rate notices, showing a capital value for your property. You may also be required to show bank statements to verify savings and copies of any other investments you might hold.

Credit history verification

Some lenders will ask to see the past three months of statements for your credit cards, transaction accounts and statements showing timely mortgage repayments. This gives them an idea of how much money is flowing through your accounts and how you're handling your financial obligations as a self-employed borrower.

Contract of Sale

If you're purchasing a home, you will need to provide a copy of a signed, fully executed Contract of Sale for the property.

Refinancing

If you are refinancing an existing mortgage over to a new lender, you may be asked for 12 months' worth of home loan statements to show that you're meeting your payment obligations. If you're consolidating other debts into your mortgage, such as personal loans or credit cards, you'll need to include statements for these too.

How to get your low-doc home loan approved

Perhaps the biggest key to getting any home loan approved is to find the right lender for your specific circumstances. every lender has different lending policies and some are more open to receiving low-doc loan applications than others. These policies will dictate how the lender view self employed home loan applications. This means you risk having your application declined if you approach a bank that won't be lenient with a self-employed borrower. So the key here is to do your research of contact a good broker who can start you off in the right direction.

Another consideration for self employed borrowers is that one of the biggest problems they face when applying for a home loan is that their accountant is often too good. Your accountant works very hard to reduce your taxable income by writing down a lot of your business expenditure. While this might help reduce how much you pay in tax, it also has a negative effect on reducing how much you're able to borrow at the same time. After all, writing down the depreciation on a business vehicle or investment property doesn't actually reduce your real income in terms of how much money you made. It's more like a paper loss. But banks rarely see it this way. They assess how much you can borrow based on your taxable income figure and little else.

If you really want to improve your chances of being approved for a self-employed low-doc loan, you might want to consider talking to a mortgage broker about your options. This way, you'll have a far better chance of approaching a lender that will welcome your application and have lending policies in place that are more likely to suit the level of documentation you're able to provide.

with a mortgage broker

FAQ

How long do I need to be self-employed for?

The majority of low doc lenders will ask that your ABN has been registered for at least two years. They may also require that you're registered for GST. Of course, there are still a few lenders around that will accept applications from self-employed people who have only been in business for between one and two years.

What if I've been self-employed for under a year?

There really aren't many lenders around that will deal with self-employed home loan applications where you've been in business for less than 12 months, but it's not impossible. For example, if you've been self-employed as a sub-contractor electrician, but you were employed in the same line of work for someone else for five years before that, you could still be considered simply because you're still doing the same work. It's just the way in which you're paid that has changed.

How do lenders calculate my income?

When you provide a full set of financial documents to your lender, they don't just look at the most recent years' taxable income. Most will add together two years income and then average them out to give them a figure to work on. This can often reduce your actual income, which also reduces the amount you can borrow. Other lenders may decide to take the lower figure of the two years and run with this.

Of course, there are some lenders that will actively try to add back some of the write offs shown in your tax returns onto your taxable income figure. This might include any depreciation on business vehicles or investment properties and even any additional superannuation contributions you made throughout those years. It might also include adding back any once-off losses noted.

How much can I borrow on a low-doc home loan?

Most lenders limit the amount you're able to borrow based on the property value and the amount of income they're able to verify for you. In most cases, low doc applications are limited to 60% of the property value, although many lenders will increase this up to 80% with a Lender's Mortgage Insurance charge added for any LVR over 60%.

What types of home loans are available?

The types of low doc home loans available are generally the same as regular home loans. This includes variable home loans, lines of credit, fixed interest rate mortgages, and even discounted professional packages are available with some lenders. You can also choose between making full Principal and Interest repayments, or making Interest-Only payments to cover just the amount of interest accrued to the account each month.

What can a low-doc loan be used for?

You are able to use a low doc home loan for personal use, such as buying a home to live in, constructing a new home, or refinancing an existing mortgage from another lender. You're also able to use it for investment or business use.

Was this content helpful to you? No  Yes

Related Posts

Bank Australia Basic Home Loan - Variable (Owner Occupier)

Pay no ongoing fees on a competitive variable rate home loan.

NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I)

A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

IMB Budget Home Loan - LVR <=90% (Owner Occupier, P&I)

Get a competitive rate without features you may not use.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.

6 Responses

  1. Default Gravatar
    LizMarch 11, 2015

    What about Sole Traders who don’t have ABNs but do have Tax returns for the previous two years? Also, is it possible to get a loan if you have 50% LVR and the loan is less than 100K? I also have a very high credit ranking.

    • Staff
      ShirleyMarch 11, 2015Staff

      Hi Liz,

      Thanks for your question.

      If you only have limited documents such as your tax returns for the previous two years, there is always the option of speaking to a home loan broker. They’ll be able to help you further should need further help in narrowing down a suitable home loan option.

      You can typically borrow 50% LVR with a loan amount less than $100,000 but you would need to do some research and see which lenders offer this option. Most lenders start their loan amounts from about $50,000.

      Cheers,
      Shirley

  2. Default Gravatar
    AndrewNovember 15, 2014

    I am an Investor and not working for a company.
    I would like to know what documents i need to provide in order to get a low-doc home loan?

    I am an Australian and based overseas, meaning i earn income from my personal investments overseas and pay taxes overseas.

    Thanks.

    • Staff
      ShirleyNovember 17, 2014Staff

      Hi Andrew,

      Thanks for your question.

      You’ll need to provide proof of your income, assets and credit history. These could things like tax returns that you’ve completed overseas, any documents confirming your title for your assets and a credit report from a country that you’ve conducted in.

      Speaking to a mortgage broker may be best in this case.

      Cheers,
      Shirley

  3. Default Gravatar
    KylieAugust 3, 2014

    Is there any lenders who let you borrow when self employed and only owning abn for a year

    • Staff
      ShirleyAugust 4, 2014Staff

      Hi Kylie,

      Yes, there are few banks who may be able to help. You may want to consider the big four, along with second tier lenders such as St.George, Bankwest, Citibank etc.

      Cheers,
      Shirley

Ask a question