Low-doc home loans for tradies and contractors: how they work and when they make sense

If you're a sparky, chippie, plumber or machine operator working on your own ABN, the standard home loan checklist can feel like it was written for someone else. Most lenders want two years of personal and business tax returns. If you only started contracting last year, or your returns are still sitting with your accountant, that box stays empty. A low-doc loan is one way around it.

What "low doc" actually means

Low doc stands for low documentation. It doesn't mean no documentation, and it doesn't mean the lender skips checking your income. Under the responsible lending obligations in the National Credit Act, lenders and brokers must make reasonable inquiries about your financial situation and take reasonable steps to verify it. A low-doc loan simply lets you verify income with different evidence.

Depending on the lender, that evidence could include:

• Business activity statements (BAS), usually the most recent 6 to 12 months
• Business bank statements showing regular deposits that line up with your declared income
• An accountant's letter confirming your income, sometimes on a set form the lender supplies
• A signed income declaration from you, backed by one of the above

BAS statements matter here because they show turnover. A business must register for GST once its GST turnover reaches $75,000 or more, and a registered business lodges BAS. If you're under the threshold and not registered, your bank statements and an accountant's letter will do more of the work.

Who it can suit

Low-doc lending tends to fit a few common situations we see around Mackay and the Bowen Basin:

• You've held your ABN for a year or so and your first full tax return isn't lodged yet
• Your business has grown fast and last year's return no longer reflects what you earn
• You moved from a wage job to contracting on the same site and your income is steady, just structured differently
• Your returns are behind and you want to buy before they're caught up

Time on your ABN still counts. Some lenders look for at least 12 months of ABN registration, others for two years, and a few may consider less if you worked in the same trade as an employee beforehand. It depends on the lender and your circumstances.

The trade-offs

Lenders see low-doc loans as higher risk because the income evidence is lighter. You'll usually feel that in three places:

1. Deposit. Many lenders cap low-doc loans at a lower loan-to-value ratio than full-doc loans, so you may need a bigger deposit.
2. Pricing. Interest rates and fees on low-doc products are generally higher than on standard home loans.
3. Mortgage insurance. Where a lender allows a higher loan-to-value ratio, lenders mortgage insurance may apply, and it can cost more on a low-doc loan.

Because of that, it pays to check whether you really need low doc. Plenty of tradies assume they don't fit a standard loan when they do. If you have one year of returns, some lenders will assess on a single year. If you contract to one main client on a regular roster, some lenders may assess you much like a wage earner using your contract and recent invoices. Those options are worth ruling in or out first.

Contractors on a mine site

A lot of Bowen Basin contractors run an ABN but work like employees: one client, a fixed roster, regular invoices. That pattern can help. A steady run of invoices and matching deposits tells a lender more than a single lump of annual income does. Keep your invoicing regular and your business account separate from your personal spending. Both make the assessment easier whether you go low doc or full doc. Our mining and FIFO home loans page covers roster income in more detail.

Getting your paperwork ready

Before you talk to a lender, pull together:

• Your ABN and GST registration details
• BAS statements for the last 12 months, if you lodge them
• Six to 12 months of business bank statements
• Your accountant's contact details, so the lender's form can be completed quickly
• Details of any tax debt and any payment plan with the ATO
• Your deposit savings history and personal bank statements

Be upfront about tax debts and late lodgements. Lenders find them anyway, and an explained issue is far easier to place than a surprise.

Plan your exit from low doc

A low-doc loan works well as a bridge. Once your tax returns are lodged and show the income, you may be able to move to a full-doc loan with sharper pricing. Put a reminder in for when your next return is assessed, and have a look at our refinance page when you get there. Any refinance depends on your circumstances at the time, including property value and income.

Your accountant can advise on how your business structure and tax position affect what shows up on paper. We then look for lenders whose policy fits those figures. More on that on our self-employed home loans page.

For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.

Talk it through

If you're on an ABN and not sure which way to go, call or text us on 0458 773 002. Or start with the free assessment at our contact page and we'll tell you which documents to gather first.

Common questions

Sources

• ASIC: Responsible lending
• ATO: Registering for GST

This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Self-employed loans.