Navigating Home Loans for Self-Employed: Low Doc vs. Full Doc
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27 Oct, 2023
Updated: 08 Aug, 2024
Are you self-employed in Australia and dreaming of buying a home? As someone with a non-traditional income structure, securing a home loan can be difficult. Fortunately, there are solutions available to help self-employed borrowers, even those with low documentation.
Full-doc loans are traditional home loans that require self-employed borrowers to provide detailed financial documentation.
- Full-doc loans require self-employed borrowers to provide standard documentation to prove their income, assets and liabilities.
- You will need to provide two full financial years of up-to-date tax returns and Notices of Assessment (NOA) from the Australian Tax Office (ATO)
- Full-doc loans offer lower interest rates than low-doc loans.
- Full doc loans may be a better option for self-employed borrowers who have all the necessary documentation to prove their income.
Low-Doc Self-Employed Home Loans
Low-doc loans are tailored to self-employed individuals who may not have the typical financial documentation required for a full-doc loan.
- Low-doc loans are suitable for self-employed borrowers who need help proving their income.
- Low-doc loans may be suitable for self-employed borrowers who have a deposit saved or have existing equity in a property.
- Self-employed borrowers may need to provide their quarterly BAS from the ATO or bank account statements for six months or more to prove their income.
- Lenders may want to see evidence of regular income from a particular profession.
Low-Doc vs Full-Doc
| Details | Low Doc | Full Doc |
|---|---|---|
| Who’s it for? | For self-employed borrowers who have the income to afford a house but not the standard self-employed documents to prove it. | For self-employed borrowers who have the income to afford a house and the standard self-employed documents to prove it. |
| What documents are required? | Your ABN 12 months BAS 6 months’ bank statements for your main business account and personal cheque account. An accountant’s letter | 2 years of ABN registration 2 years of personal and business tax returns Recent business bank statements Recent two years of balance sheet and profit-and-loss statements |
Which One Is Right for You?
The choice between low-doc and full-doc loans for self-employed individuals depends on your unique situation. Consider the following factors:
- Income Stability: If you have a consistent income and can provide the necessary documentation, a full-doc loan may be the better choice, due to its lower interest rates and higher borrowing capacity.
- Limited Documentation: If you lack the traditional documentation required for a full-doc loan, a low-doc loan can be a practical option to secure your home. It offers the flexibility needed to accommodate self-employed individuals with fluctuating incomes.
- Interest Payments Tolerance: Consider how much you are willing to pay in interest over the life of the loan. If you are comfortable with a potentially higher interest rate in exchange for the convenience of less documentation, a low-doc loan may be the way to go.
What Types Of Self-Employed Borrowers Do We Help?
- Sole traders: These are self-employed individuals who own and operate their own businesses. They are legally responsible for all aspects of the business and cannot share debts and losses with other individuals.
- Partnerships: In a partnership, two or more people operate a business together. Profits are recorded through personal tax returns.
- Freelancers: These are self-employed individuals who work for multiple clients and may not have a fixed income.
- Contractors: These are self-employed individuals who work on a contract basis for a specific period of time. They may work in a variety of industries, including construction, IT and consulting.
- Business owners: These are self-employed individuals who own and operate a small business or a company and trusts. They may have employees and may have a more stable income than sole traders or freelancers.
We’re Here For You
Don’t let the complexities of self-employment hold you back – reach out to a mortgage broker today and embark on your homeownership journey with confidence. At Home Loan Experts, our team will be there with you every step of the way. We are dedicated to finding the right solution for your unique situation. Call us on 1300 889 743 or enquire online.
