“Will I be able to get a home loan?” The answer depends on several factors that lenders use to assess your financial situation and borrowing capacity.
In this guide, we’ll walk you through the key criteria lenders consider, how you can improve your chances of approval, and what steps to take to prepare for a successful home loan application.
Lenders use a range of criteria to determine whether you qualify for a home loan. These include:
Let’s explore each of these in detail.
Your income is one of the most important factors in determining your borrowing power. Lenders want to ensure you have a stable and sufficient income to meet your monthly mortgage repayments without financial stress.
If you’re employed, lenders will typically ask for:
Note: While bonuses and overtime can be included in your income assessment, they are often discounted unless you work in essential services where such income is consistent (e.g. healthcare, emergency services).
If you’re self-employed, the documentation requirements are more extensive. You’ll usually need:
Lenders will assess your average income over time and look for consistency and profitability in your business.
Lenders will evaluate your current financial obligations to determine whether you can manage additional debt. This includes:
High levels of existing debt can reduce your borrowing capacity. Lenders apply a “serviceability assessment” to ensure you can afford the new loan on top of your current commitments. They may also apply a buffer rate (typically 3% above the actual interest rate) to test your ability to repay under changing conditions.
Your study loan may affect your borrowing power, but the impact varies depending on the lender and your repayment obligations.
The good news? Not all lenders treat HECS-HELP debt the same way. An Acceptance Finance mortgage broker can help you find lenders with more favourable policies.
Your credit score is a key indicator of your financial reliability. It reflects how well you’ve managed credit in the past, including:
A strong credit score not only improves your chances of approval but may also help you secure a lower interest rate.
Having a deposit is essential, but lenders also want to see that your savings are “genuine.” This means the money has been saved gradually over time, not gifted or won.
If your loan-to-value ratio (LVR) is above 80%, genuine savings become even more important. Some lenders may accept non-genuine savings (e.g. gifts or bonuses), but this depends on the lender’s policy.
Lenders assess your living expenses to ensure you can manage your loan repayments alongside your day-to-day costs. They’ll ask you to declare your expenses and may also review your bank statements.
Lenders compare your declared expenses against benchmarks like the Household Expenditure Measure (HEM). If your spending is high, it could reduce your borrowing power.
Lenders prefer applicants with stable employment. Most require:
If your new role is similar to your previous one and your income is consistent, some lenders may still approve your application. However, casual employees may need to show six months or more of consistent income.
Even if you qualify for a loan, it’s important to borrow within your means. Spending too much on repayments can lead to mortgage stress.
Mortgage stress occurs when more than 30% of your pre-tax income goes toward home loan repayments. This can make it difficult to cover other essential expenses and save for the future.
Many financial experts recommend keeping your mortgage repayments below 28% of your gross income. This allows room for:
Here are some practical steps to boost your chances of getting approved:
