Australian banks and lenders want to ensure they provide home loans to borrowers who can afford the repayments. This means that lenders have specific criteria they use to assess potential home loan applications.
Key criteria lenders use to evaluate mortgage applications
1. Personal Details
Your lender will ask for personal information such as your full name, age, address, and so on.
Age
In order to be approved for a home loan , you must be at least 18 years old. Age can be a factor if you're an older borrower. Borrowers particularly over 55 years of age will need to demonstrate they can pay off the mortgage comfortably for the entire loan term.
For instance, a 60-year-old borrower may not suit a 30-year loan term. This is because many people retire in this time, and the borrower has a higher likelihood of dying before the mortgage is over.
This is called an exit strategy. It includes providing extra financial information, such as their superannuation balance as evidence on how the mortgage could be repaid without regular employment income.
Resident status and who's on the application
Are you a permanent resident of Australia? Lenders will want to know. If you are not a permanent resident, you may still be able to borrow; however, lenders may place limits on the amount you can borrow or you may need a larger deposit.
Meanwhile, if you are not a resident but you are married or in a de facto relationship with an Australian citizen, your application will be assessed like any other resident's application.
A lender will also likely ask you how many people are applying for the mortgage, the relationship status between the borrowers, and whether they have any dependent children.
2. Your employment
Lenders will review your work situation to see if your income is reliable. How this is assessed depends on your type of employment. If you’re a salaried employee who receives regular payslips with tax withheld, proving your income is usually straightforward.
They’ll also look at whether you’re employed full‑time, part‑time, or on a casual basis. Casual workers may face more challenges when applying for a home loan, but every application is considered individually.
They will also look at the duration of your employment in your current position. Lenders generally need the past three months of payslips along with your home loan application. It is preferable to have the same job, or at least be in the same industry with a similar job, for six months before applying for a mortgage, as the lender can be assured you have steady employment and therefore income.
If you are self-employed, it can be more difficult to prove your income as you don't have payslips. Other documentation will be required to prove your income, such as Business Activity Statements (BAS), tax returns, or a letter from your accountant. You may have to apply for a low-doc loan if you are self-employed.
See also: How can I get a home loan if I’m self-employed?
3. Income
Lenders assess your gross income to determine if you can repay your home loan. They calculate the size of a home loan payment you will likely be able to manage.
If you are a PAYG employee, your lender will be able to determine your average pay amount by analysing your last three payslips.
Lenders will also accept other sources of income such as:
- Rental income (up to 80%)
- Centrelink benefits (child support payments)
- Fringe benefits (up to 80%)
- Share dividends
- Overtime pay (with evidence for the past 2 years).
Calculate how much money you can borrow based on your income by using our Home Loan Calculator or Borrowing Power Calculator .
4. Credit score
Your credit score will be assessed to determine your debt repayment history and whether or not you're a risky borrower. If you've successfully applied for and repaid loans or credit cards in the past, you may have a good credit score. However, if you've defaulted on loans in the past or been bankrupt, you may have bad credit . Even forgetting to pay your electricity or phone bill can reflect badly on your credit history.
If you do have a bad credit history, there are still specialist lenders who may be able to help, though there may be fewer choices available in terms of interest rates and features. Typically, the higher the score, the more likely you are to be approved.
5. Expenses
Your disposable income is assessed by analysing your monthly expenses. A lender will take into account your day-to-day living expenses such as utility bills, telephone and internet, petrol, groceries, childcare, entertainment subscriptions, and recreational spending.
If a large portion of your income is taken up by your expenses, it may not leave much left over for your mortgage repayments. This could impact your chance of home loan approval. Many lenders use the Household Expenditure Measure or HEM to assess borrowing capacity.
Borrower Expectations vs. Lender Risk Criteria
Where many borrowers run into trouble is that they approach lending with a mindset of “What can I stretch to afford?” whereas lenders are asking a different question entirely - “What can this borrower sustain comfortably over time?”
For prospective buyers, the most helpful step is gaining a clear understanding of their actual spending behaviour before applying. When borrowers align their financial habits with the way lenders assess risk, the approval process tends to become far more straightforward.
6. Assets and liabilities
When assessing your application, lenders will look at both your assets and liabilities.
Assets include investment properties, vehicles you own, shares, superannuation and even jewellery and artwork. A lender takes this into account when calculating your borrowing power, as selling these assets could be an option if you were to ever fall into mortgage stress.
Liabilities are any debts you have, such as credit cards, personal loans, car loans, or HECS/HELP debts. If you owe money to other lenders, a bank may be hesitant to lend you more as this could leave you in a sticky financial situation if you were unable to repay the loan. Lenders will likely also take into account your full credit card limit into your borrowing capacity, regardless of whether you've maxed it out or not.
7. Deposit
Saving a hefty deposit is a great way to show a lender you have the financial discipline needed for a mortgage. Most lenders require a borrower to pay a minimum deposit amount as part of the lending criteria. The typical benchmark is 20% of the property's value. If you don't have the 20% deposit, you will likely need to pay Lender's Mortgage Insurance (LMI).
Lenders also prefer that most of your deposit comes from genuine savings - money earned from your job and put aside in an account for at least three months. However, you can still put First Home Owner Grants, gifts (from family or friends), and the sale of assets towards your deposit.
8. Property details
The lender will also need some information about the property you wish to buy including:
- Value
- Location
- Type e.g. house, apartment, unit, etc.
- Age
- Size
- Title
Keep in mind that some lenders may have restrictions when it comes to what properties they can accept as security on the loan. While homes in metro areas are preferred (easy to sell in future), issues may arise with rural or small properties. For example, many lenders won't finance studio apartments or apartments under a certain size out of concern that, should you default on the loan, the resale value will not be enough to cover their costs.
9. Loan amount
The size of your home loan affects how lenders assess your application. The amount you wish to borrow must not exceed the loan's maximum loan-to-value ratio (LVR). Make sure that your proposed borrowing amount fits between the minimum and maximum loan limits imposed by the lender.
Questions every borrower should ask before a mortgage
Before applying for a mortgage, you can conduct a self-check and ask yourself practical questions about your finances, employment, and long-term goals to highlight your readiness before reaching out to lenders.
- What percentage of my income will go toward the mortgage?
- Do I have a steady job or reliable business income?
- Could my income change in the next few years (career shift, contract work, etc.)?
- Is my credit score strong enough to qualify for favourable rates?
- Do I have outstanding debts that could affect approval?
- Do I have savings for a down payment (ideally 20% to avoid LMI)?
- Beyond the mortgage, can I cover property taxes, insurance, maintenance, and utilities?
- Fixed-rate vs. variable-rate: which aligns with my risk tolerance?
- Do I prefer lower monthly payments or faster payoff?
- Do I understand the interest rate structure, fees, and penalties?
- Have I compared offers from multiple lenders to ensure the best deal?
How do the different mortgage lenders stack up?
Looking for the best home loan deal? Compare the latest home loan interest rates, features and fees from Australia's leading lenders.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.79% p.a. | 5.83% p.a. | $2,931 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.69% p.a. | 5.60% p.a. | $2,899 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.84% p.a. | 5.86% p.a. | $2,947 | Principal & Interest | Variable | $0 | $250 | 60% | |||||||||||||
5.84% p.a. | 5.85% p.a. | $2,947 | Principal & Interest | Variable | $0 | $0 | 80% | |||||||||||||
5.84% p.a. | 5.86% p.a. | $2,947 | Principal & Interest | Variable | $0 | $350 | 60% |
First published in January 2023
