11 mortgage lending criteria you should be aware of

It is difficult to determine how banks and mortgage lenders determine whether you are suitable for a loan or not as not all criteria is made public. However, there is a general framework most lenders operate on. 

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Here are the most common conditions lenders look for when assessing borrowers’ applications:

  1. Age

In order to be to be approved for a home loan, you must be over 18 years old. Keep in mind that older borrowers (over 50 years old) will need to provide a written exit strategy. This is a plan for what will happen with the loan when you retire. For an owner occupied home loan, selling the house is not a valid exit strategy and the lender will need to see that you will be able to afford the repayments without selling the property.

  1. Residency

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. If you are not a resident but you are married or in de facto relationship with an Australian citizen, your application will be assessed like any other resident’s application.

  1. Your employment

Your work situation will be assessed to determine if your income is stable. Your assessment will depend on your type of employment. If you receive a payslip with tax withheld, proving your income should be straight forward. The lenders will examine your type of employment, whether you are full-time, part-time or casual worker. Casual employees may find it more difficult to get approval for a home loan, but it’s all considered on a case by case basis.

They will also look at how long you have been employed in your current position. It is preferable to have the same job for 12 months or be in the same industry for two years.

  1. Self-employed

If you are self-employed, the chances are it is a lot 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 for your accountant.

  1. Income

Lenders assess your income to determine if you are able to 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 and overtime pay( with evidence for the past 2 years).

Calculate how much money you can borrow based on your income by using the InfoChoice Home Loan Calculator or Borrowing Power Calculator.

  1. Credit score

Your credit score will be assessed to determine your debt repayment history. If you have bad credit history, there are still lenders who may be able to help. Some lenders specialise in helping those with bad credit.

  1. Expenses

Your disposable income is assessed by analysing your monthly expenses. To calculate this, lenders use either the Household Expenditure Method, (which calculates the median spend for basic necessities), or the Henderson Poverty Index, which is based on a survey of Australian families (the Henderson Poverty Index assumes a family is made up of of two adults and two children).

  1. Assets

Assets include investment properties, vehicles you own, shares, superannuation…even jewellery and artwork.

  1. Liabilities

Liabilities are any debts you have, such as credit cards, personal loans, car loans or HECS/HELP debts. 

  1. Deposit

Saving a deposit will be of great benefit to you as it shows you have financial discipline. Lenders mortgage insurance (LMI) will usually be required if you don’t have a full 20% deposit. It is still possible to get a home loan without a deposit. One way is to use a guarantor, someone (usually parents) who can offer their home as security for your home loan. 

  1. The reason for purchase

Lenders will want to know your reason for purchasing the property. That will determine the type of loan you can get, as well as the amount you can borrow. As an owner-occupier, there are likely to be less restrictions and you are more likely to  be offered a home loan with a lower interest rate. Investors face more stringent lending criteria and end up with higher interest rates.


This update is not financial advice. This article is general news and information.

Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.

Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.

WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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