What Lenders Actually Look At
When you apply for a home loan, lenders run you through a checklist. They don't care about your dreams or plans, they care about risk. Can you pay this back? Will you default? Here's what they assess:
- Income, how much you earn, how stable it is, and how you can prove it
- Employment, your job type, how long you've been there, and the industry
- Expenses, what you spend each month (living costs, subscriptions, existing debts)
- Credit history, your track record of paying debts on time
- Deposit / equity, how much of your own money is in the deal
- Property, the security they're lending against (location, type, condition)
James earns $120,000/yr as a full-time software engineer. He's been in his role 2 years, has a clean credit history, and $80,000 saved. Most lenders would approve him quickly.
Priya also earns $120,000/yr as a freelance graphic designer. She's been self-employed for 18 months with fluctuating income. Despite earning the same amount, her application is more complex, she'll need different documents and fewer lenders will consider her.
Same income, very different processes. That's why employment type matters so much.
Key point: Being self-employed, casual, or on contract doesn't mean you can't get a loan. It means you need the right lender and the right documentation. This is exactly where a broker earns their keep, we know which of our 60+ lenders suit each situation.
Your Employment Type Changes Everything
Select your employment type below and we'll show you exactly what lenders look for in your situation:
Full-Time Employee
This is the simplest scenario for lenders. You have a guaranteed salary, regular pay slips and job stability.
What lenders typically require:
- 2 most recent payslips (showing YTD earnings)
- Employment letter or contract confirming your role and salary
- Minimum 3-6 months in your current role (some lenders accept from day 1 if you're in the same industry)
- Probation period, most lenders are fine during probation; a few want you past it
Marcus earns $85,000 as a full-time accountant. He started 4 months ago but was in accounting for 6 years prior. Most lenders will use his full $85,000 base salary. If he gets regular overtime or bonuses, some lenders will include a portion (usually 80% of the average over 12 months). His application is straightforward, 2 payslips, employment letter, done.
Bonus/overtime income: Most lenders only count this if you've been receiving it consistently for 12+ months. If you just started a role with a bonus structure, the first year of bonuses may not count toward your borrowing power.
Part-Time Employee
Part-time is similar to full-time but lenders calculate income differently since your hours may vary.
What lenders typically require:
- 2 most recent payslips
- Minimum guaranteed hours per week (or average hours over 3-6 months)
- Employment letter confirming part-time status and contracted hours
- 6+ months in the role (some lenders want 12 months for part-time)
Amelia works part-time as a nurse, 24 hours/week guaranteed, earning $62,000/yr. Her lender uses the guaranteed hours x hourly rate as her base income. She sometimes picks up extra shifts, if she's been doing this consistently for 12 months, some lenders will include a portion of the extra hours. She'll need payslips showing consistent earnings and a letter confirming her guaranteed hours.
Casual Employee
Casual is harder because there are no guaranteed hours. Lenders need to see consistency.
What lenders typically require:
- Minimum 12 months with the same employer (non-negotiable for most lenders)
- 6 months of payslips or bank statements showing regular income
- Income calculated as average of last 6-12 months (excluding casual loading)
- Some lenders discount casual income by 20% as a buffer
- Employment confirmation letter stating ongoing casual arrangement
Ryan is a casual barista earning roughly $52,000/yr. He's been with the same cafe for 14 months, working 30-35 hours per week consistently. His lender will average his last 6 months' earnings ($26,000) and annualise it ($52,000). But they'll strip out the 25% casual loading, so they'll assess his income at roughly $41,600/yr for borrowing power purposes. Big difference.
Common trap: Casual loading (the extra 25% you get instead of leave entitlements) is not counted as income by most lenders. Your effective borrowing power on a casual income is lower than the number on your payslip suggests.
Self-Employed
This is where it gets complex. Lenders want to see that your business is stable and profitable, and they look at very different documents.
What lenders typically require:
- ABN registered for 2+ years (some lenders accept 1 year with conditions)
- 2 years of personal tax returns + ATO Notice of Assessment
- 2 years of business financials (profit & loss, balance sheet)
- If a company or trust: 2 years of company/trust tax returns
- Recent BAS (Business Activity Statements), last 4 quarters
- 6 months of business bank statements
How income is calculated:
| Structure | Income Used |
|---|---|
| Sole trader | Net profit from tax return + any add-backs (depreciation, one-off expenses) |
| Partnership | Your share of the partnership's net profit |
| Company | Your salary + dividends + director fees. Retained profits sometimes counted if you own 100% |
| Trust | Distributions to you + trust's net income (some lenders only count distributions) |
Deepa runs a marketing agency as a Pty Ltd company. Revenue is $400k/yr. She pays herself a $100k salary and takes $50k in dividends. Company profit after all expenses is $80k (retained).
Most lenders will assess her income as $150,000 (salary + dividends). A few lenders may add the retained $80k since she owns 100% of the company. The right lender for Deepa could see her income as $150k or $230k, a massive difference in borrowing power.
This is exactly why the lender you go to matters. A broker who knows which lenders treat company profits favourably can get Deepa an extra $200,000+ in borrowing capacity.
Low-doc loans: If you can't provide full financials, some lenders offer "low-doc" loans where you self-declare income with BAS or accountant's letter. The trade-off: higher rates (usually 0.5-1.0% more) and lower LVR (usually max 80%). These exist for a reason, but go full-doc if you can.
Contract Employee
Contract workers fall somewhere between employed and self-employed. The key question lenders ask: is this a PAYG contract or an ABN contract?
PAYG Contract
You're on a company's payroll with tax deducted. Treated similarly to full-time by most lenders.
- Minimum 6-12 months remaining on contract OR evidence of renewals
- 2 recent payslips + contract document
- Some lenders want history of contract renewals
- Industry matters, IT, nursing, engineering contracts are seen as very secure
ABN Contract
You invoice through your own ABN. Treated as self-employed by lenders, same documentation requirements.
- ABN registered 2+ years
- 2 years of tax returns
- BAS statements
- Current contract showing rate and term
Kai is a PAYG IT contractor earning $1,200/day through a recruitment agency. His contract is 12 months with 6 months remaining. He's had 3 consecutive contracts over 4 years.
Most lenders will treat this like full-time employment. They'll use $1,200 x 5 days x 48 weeks = $288,000/yr (lenders often assume 48 weeks, not 52, to account for gaps between contracts). His borrowing power could be over $1M with the right lender.
Income Types and Documentation
Lenders don't just look at your salary. There are many types of income, some easier to use than others.
| Income Type | How Lenders Treat It | What You Need |
|---|---|---|
| Base salary | 100% used | Payslips + employment letter |
| Overtime | 80% of average over 12 months | 12 months of payslips showing overtime |
| Bonuses | 80% of average over 1-2 years | 2 years of payment evidence |
| Commission | 80% of average over 1-2 years | Payslips + employment letter confirming commission structure |
| Rental income | 80% of gross rent (some lenders use 70%) | Lease agreement or rental statement from property manager |
| Centrelink | Family Tax Benefit usually accepted; some pensions | Centrelink income statement |
| Child support | Accepted by some lenders | Court order or CSA assessment |
| Car allowance | Usually 100% if shown on payslip | Payslips showing allowance |
| HECS-HELP | Not income, but it's a liability that reduces borrowing power | ATO account showing balance |
Emma earns $90,000 base + $15,000 average commission + receives $22,000/yr rental income from an investment property.
Lender calculation: $90,000 + ($15,000 x 80%) + ($22,000 x 80%) = $90,000 + $12,000 + $17,600 = $119,600 assessable income.
Her total income is $127,000, but lenders only assess $119,600. That ~$7,400 gap translates to roughly $30,000-$40,000 less borrowing capacity.
Expenses & Existing Debts
Your income is only half the story. Lenders subtract your expenses and existing debt obligations to figure out what's left for mortgage repayments.
Living Expenses: HEM vs Declared
Lenders use the higher of two numbers:
- HEM (Household Expenditure Measure), a benchmark based on your household size and income bracket. It's the minimum they'll assume you spend.
- Your declared expenses, what you tell them you actually spend (they'll verify with bank statements)
Single person earning $90,000: HEM is approximately $1,600-$1,800/month
Couple with 2 kids earning $150,000 combined: HEM is approximately $3,200-$3,600/month
If your actual declared expenses are lower than HEM, the lender uses HEM anyway. If your expenses are higher, they use your higher number. You can't game this.
How Existing Debts Kill Borrowing Power
This is where most people get caught off guard:
| Debt Type | How Lenders Assess It | Impact on Borrowing Power |
|---|---|---|
| Credit card | 3% of the limit per month (even if the balance is $0) | A $10,000 credit card limit reduces your borrowing power by ~$50,000-$60,000 |
| HECS-HELP | The actual repayment amount based on your income bracket | $40,000 HECS debt reduces borrowing by ~$30,000-$40,000 |
| Car loan | Actual monthly repayment | A $500/month car loan reduces borrowing by ~$80,000-$100,000 |
| Afterpay/BNPL | Some lenders assess the limit or recent usage | Active BNPL accounts can flag as a "character risk" |
| Personal loan | Actual monthly repayment | Assessed at face value, clear it if you can |
The credit card trap: Even if you pay your credit card in full every month and never pay interest, lenders assess 3% of the limit as a monthly commitment. A $20,000 credit card limit you barely use costs you ~$100,000-$120,000 in borrowing power. Close unused cards or reduce limits before applying.
Before clean-up: Sam earns $100,000. He has a $15,000 credit card (usually $0 balance), $35,000 HECS and a $400/month car loan. Borrowing power: ~$480,000.
After clean-up: Sam closes the credit card and finishes the car loan. Same income. Borrowing power: ~$630,000. That's $150,000 more, just by clearing debts that were reducing his serviceability.
Want us to run your actual borrowing power?
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Credit Scores: What Lenders See
Your credit score is a number (0-1,200 depending on the bureau) that summarises your credit history. Lenders check this as part of every application.
The Three Bureaus
| Bureau | Score Range | How to Check |
|---|---|---|
| Equifax | 0-1,200 | Free via equifax.com.au |
| Experian | 0-1,000 | Free via experian.com.au |
| illion | 0-1,000 | Free via checkyourcredit.com.au |
Every lender checks at least one bureau, many check two. Your score can differ between bureaus because they don't all have the same data.
What Hurts Your Score
- Late payments, even being 14+ days late on a phone bill or utility goes on your file
- Defaults, unpaid debts over $150 that are 60+ days overdue. Stay on your file for 5 years
- Too many credit applications, each application creates an "enquiry." Multiple enquiries in a short period signals desperation
- Court judgments / bankruptcy, severe, stays on file for 5-7 years
- BNPL, Afterpay and similar are now reported to credit bureaus
What Lenders Actually Want
833-1,200 (Excellent): Best rates, widest lender choice. You'll have no issues.
726-832 (Very Good): Still excellent. Access to most lenders and rates.
622-725 (Good): Most lenders are fine. Some premium products may require higher.
510-621 (Average): Still possible, but lender choice narrows. Some may charge higher rates.
Below 510 (Below Average): Specialist lenders only. Higher rates, more conditions. Not impossible, but harder.
The truth: Most lenders care more about what's on your file than the number itself. A score of 680 with no defaults is much better than 750 with a recently paid default.
Before you apply: Check your credit report for free (all three bureaus). Look for errors, wrong addresses, debts that aren't yours, enquiries you don't recognise. Dispute anything incorrect directly with the bureau. This is free and can take 2-4 weeks.
Estimate Your Borrowing Power
This is a rough estimate based on general serviceability rules. Actual borrowing power varies by lender, some are more generous than others. A broker can give you an exact figure.
This is a rough estimate. Actual borrowing power varies by lender by up to 20%. For an accurate figure, talk to a broker.
1. See how removing a credit card limit changes your borrowing power
2. Add a dependant and see the impact
3. Try adding rental income as "Other Income"
Common Reasons for Decline (and How to Fix Them)
If your application gets declined, it's not the end of the world. Here are the most common reasons, and what to do about each one.
1. Insufficient income / serviceability
You can't comfortably afford the repayments based on the lender's assessment. Most lenders add a 3% buffer to the current rate when testing affordability.
Fix: Reduce debts (close credit cards, pay off personal loans), increase deposit to borrow less, add a co-borrower, or try a different lender, borrowing power can vary by 20%+ between lenders.
2. Credit history issues
Defaults, late payments, or too many recent applications.
Fix: Get your credit report, dispute errors, pay outstanding defaults (paid defaults look better than unpaid), and wait before applying again. For minor issues, specialist lenders or non-bank lenders may still approve you.
3. Deposit too small
You don't have enough genuine savings or the LVR is too high for the lender's appetite.
Fix: Save more, use a guarantor (parents guarantee a portion), use the First Home Guarantee (2% deposit), or look at lenders with higher LVR tolerance.
4. Property doesn't meet lender criteria
Some properties are harder to lend on, very small apartments (under 40sqm), rural properties, student accommodation, or properties with unusual construction.
Fix: Different lenders have different property policies. A broker can find one who accepts your property type. This is one of the biggest advantages of using a broker vs going direct to one bank.
5. Employment doesn't meet policy
Probation, too little time in role, casual under 12 months, or self-employed under 2 years.
Fix: Wait until you meet the threshold, try a lender with more flexible employment policies, or provide additional supporting documents.
Been declined? Don't give up.
A broker can often find a lender that fits your situation. We've seen it hundreds of times.
Knowledge Check
Quick test on what you've learned. No pressure.
A casual employee needs how long with the same employer before most lenders will consider them?
You have a $15,000 credit card limit with $0 balance. How does a lender treat this?
Deepa runs a company earning $400k revenue, pays herself $100k salary + $50k dividends. Most lenders will assess her income at:
Why would the same person have different borrowing power at different lenders?
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Module 2 Complete!
You now understand what lenders look at and what affects your borrowing power. Next: the step-by-step process of buying your first home.
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