Getting a home loan approved in Australia involves more than simply showing a payslip. Lenders apply their own internal policies to determine how much of your income they will actually count – and the rules vary significantly depending on your employment type, income stability, and the lender you’re applying with. This guide explains how Australian lenders assess different income types, why your borrowing power may be lower than you expect, and what you can do about it.
The bank doesn’t always use your full income.
Lenders apply their own rules to assess how much of your income is reliable and ongoing and that directly affects how much you can borrow.
Quick Summary
- Most lenders assess income over the past 1–2 years
- Variable income (bonuses, overtime, commission) is often reduced or averaged
- Rental income is usually discounted (around 70–90%)
- Self-employed income is based on tax returns, not revenue
- Your borrowing power depends on income AND expenses
How Lenders Calculate Your Income
Lenders aren’t just checking how much you earn – they’re evaluating how stable and consistent your income is.
Their goal is simple:
👉 Can you reliably repay this loan over the long term?
To do that, they break your income into different categories and apply specific rules.
How Different Types of Income Are Treated
Salary (Full-Time or Part-Time)
- Usually counted at 100%
- Considered the most stable form of income
Overtime, Bonuses & Commission
- Typically averaged over 1–2 years
- May be reduced to account for inconsistency
- Some lenders only include it if it’s regular and ongoing
Casual Income
- Often requires 6–12 months history
- May be reduced or averaged
- Some lenders are stricter with casual roles
Rental Income
- Usually only 70-90% is counted
- This accounts for vacancies, maintenance, and expenses
Self-Employed Income
- Based on tax returns (usually last 2 years)
- Lenders may use:
- The lower year
- Or an average of both years
- Add-backs (like depreciation) may be included
How HECS/HELP Debt Affects Your Borrowing Power
Many borrowers are surprised to learn that their HECS or HELP debt directly reduces their borrowing capacity, even if they’re not actively making repayments above the compulsory threshold. Lenders treat HECS repayments as an ongoing liability when assessing your expenses, which reduces the amount they believe you can comfortably repay each month. The higher your income, the higher your compulsory repayment rate – and the greater the impact on your borrowing power. This affects first home buyers in particular, many of whom are still carrying student debt while trying to save a deposit.
Parental Leave and Maternity Leave Income
If you are currently on parental leave or about to go on leave, lenders will typically want to see evidence that you are returning to work and confirmation of your pre-leave salary. Most lenders will assess your borrowing capacity based on your return-to-work income rather than your parental leave payments, which means your borrowing power shouldn’t be permanently affected – but timing matters. Applying while on leave can complicate the process, and some lenders are more accommodating than others. Speaking to a broker before making any decisions is particularly important in this situation.
Second Job and Additional Employment Income
If you work a second job or have casual employment on top of your primary role, lenders may count this income – but usually only if you can demonstrate at least 6 to 12 months of consistent history. One-off or very recent second income is typically excluded. Lenders want to see that the additional income is stable and ongoing, not something you started specifically to boost your borrowing power ahead of an application.
Foreign Income
Borrowers earning income from overseas employment or foreign sources face additional scrutiny. Most lenders will discount foreign income by 20% or more to account for currency risk, and some lenders will not accept foreign income at all. If a significant portion of your income comes from overseas, it’s important to work with a broker who can identify lenders with more flexible foreign income policies.
Government Benefits and Centrelink Payments
Some Centrelink payments are accepted as income by certain lenders, while others are excluded entirely. Family Tax Benefit (Parts A and B) is the most commonly accepted, provided the payments are likely to continue for the term of the loan. Disability support payments and carer payments may also be considered by some lenders. Jobseeker and temporary payments are generally not counted. As with most income assessment questions, lender policies vary significantly and a broker can help identify which lenders will treat your full income most favourably.
How Lenders Treat Income from Investment Properties
If you own investment properties, rental income can contribute to your borrowing power – but lenders don’t count it at face value. Most lenders apply a discount of 10 to 20%, meaning they’ll count only 80-90% of your rental income to account for vacancies, maintenance, and periods without a tenant. Some lenders also offset the rental income against the investment loan repayments before adding the net figure to your assessed income. If you have multiple investment properties, understanding how each lender treats your rental portfolio can make a significant difference to what you can borrow.
Why Your Borrowing Power Might Be Lower Than Expected
This often catches many borrowers off guard.
Even if your income looks strong, lenders may reduce it because:
- Your income varies from year to year
- You’ve recently changed jobs
- Some income sources aren’t guaranteed or consistent.
- You’re self-employed and your income isn’t consistent
Example
If you earned:
- $120,000 last year
- $80,000 the year before
Potentially, lenders calculate your income as:
- $80,000 (the lower year), or
- $100,000 (an average)
👉 Not the full $120,000
What Lenders Don’t Always Count
Lenders may exclude some income entirely, such as:
- One-off bonuses
- Irregular side income
- Temporary or short-term earnings
- Income without documentation
It’s Not Just Income – Expenses Matter Too
Your income is only half the equation.
Lenders also assess:
- Living expenses
- Existing debts (credit cards, personal loans, HECS/HELP)
- Number of dependants
👉 Even with a high income, large expenses can significantly reduce your borrowing capacity.
What Documents You’ll Need
To verify your income, lenders typically require:
Employees
- Recent payslips
- PAYG summary or income statement
- Employment letter (sometimes)
Self-Employed
- Last 2 years’ tax returns
- Financial statements
- Business activity statements (BAS)
Other Income
- Rental statements
- Lease agreements
- Bank statements
How to Improve Your Assessed Income
If you’re planning to apply for a loan, you can strengthen your position by:
- Reducing existing debts
- Avoiding large expenses before applying
- Keeping income consistent where possible
- Keep clear records of all your income.
- Speaking to a broker before making big financial changes
Common Questions
Do lenders use gross or net income?
Most lenders assess your gross income, but they factor in tax and expenses when calculating borrowing capacity.
How many years of income do lenders look at?
Usually 1-2 years, depending on the type of income, but as a mortgage broker we do have access to an extremely wide array of policies across all lenders. Lenders calculate your income differently according to their own internal credit policies and appetite for certain types of customer.
Do lenders include bonuses and commission?
es – but lenders often average it and may reduce the amount they count.
Can I get a home loan as a self-employed borrower?
Yes, but you’ll typically need 2 years of financials and consistent income. Again there are exceptions to this and we assess each client on a case by case basis and match them to an appropriate lender.
Final Thoughts
Lenders don’t just look at how much you earn – they look at how reliable your income is.
That’s why two people earning the same amount can end up with very different borrowing capacities.
Need Help Understanding Your Borrowing Power?
Online calculators only give rough estimates.
To understand how lenders assess your income – and what you can realistically borrow -speak with a broker for tailored advice.
Get in touch today to have your income properly assessed and avoid surprises during the application process.
Frequently Asked Questions
Online calculators use simplified assumptions and don’t account for the specific policies of individual lenders. Your actual borrowing power depends on how your particular income type is assessed, your existing debts, living expenses, and the lender’s own credit appetite. A broker can give you a much more accurate figure.
It can. Most lenders prefer to see at least 3–6 months in your current role, and some require you to be out of any probation period before they will lend. Changing industries or moving from employment to self-employment can also complicate an application. If you’re planning a job change, it’s worth speaking to a broker beforehand.
Lenders generally assess gross income but factor in tax obligations, HECS repayments, and living expenses when calculating how much you can comfortably repay. The figure that matters most is your net surplus after all expenses — that’s what determines your maximum repayment capacity.
If you’ve recently received a pay rise or promotion, most lenders will use your current salary, provided you can document it with a payslip or employment letter. For self-employed borrowers, a recent income increase may not be fully recognised until it appears in your tax returns.
Yes – most home loan applications allow you to include a co-borrower’s income, which is one of the most effective ways to increase your borrowing capacity. Both borrowers’ incomes and liabilities are assessed together.