Being turned down for a home loan — or not knowing if you'll qualify — is one of the most stressful parts of the property journey. The good news is that lender criteria aren't a mystery. Once you understand what they're looking at, you can address any weak spots before you apply.
Lenders want to see that you earn enough to comfortably service the loan. But it's not just the amount — it's the type and stability of income. PAYG employees with at least 3 months in a job are easiest to assess. Casual, contract, and self-employed income requires more documentation and may be treated more conservatively (often averaged over 2 years).
Here's how different income types are typically assessed:
Your credit score (accessed from Equifax, Experian, or Illion) reflects your history of repaying debts. Most lenders want a score above 600, with major banks typically preferring 700+. A low score doesn't automatically disqualify you — some specialist lenders work with impaired credit — but it will limit your lender options and may result in a higher rate.
Your credit file records: credit enquiries (every time you apply for finance), defaults (missed payments over 60 days), court judgements, bankruptcies, and the types of credit accounts you hold. Positive repayment history has been recorded since 2018 under the Comprehensive Credit Reporting (CCR) system.
💡 Check your credit score for free at CreditSavvy or Equifax before applying. Errors on your credit file are more common than you'd think — incorrect defaults or accounts that aren't yours can be formally disputed and removed.
Most lenders require a minimum 5% deposit, but 20% is the magic number that avoids Lenders Mortgage Insurance (LMI). LMI is a one-off insurance premium that protects the lender (not you) if you default — it can add $10,000–$40,000 to your loan cost depending on the purchase price and deposit size.
| Purchase Price | 10% Deposit | Approx LMI Cost | 20% Deposit | LMI |
|---|---|---|---|---|
| $600,000 | $60,000 | ~$12,000 | $120,000 | None |
| $800,000 | $80,000 | ~$19,000 | $160,000 | None |
| $1,000,000 | $100,000 | ~$28,000 | $200,000 | None |
LMI estimates vary by lender and insurer. Some lenders capitalise LMI into the loan.
Some first home buyer government schemes — including the First Home Guarantee — allow you to buy with as little as 5% deposit without paying LMI. Places are limited and eligibility criteria apply. A broker can advise if you qualify.
Some lenders also offer LMI waivers for specific professions — doctors, lawyers, accountants, and other high-income professionals can sometimes borrow up to 90% LVR without LMI. Worth asking about if you're in an eligible profession.
Every debt you have reduces what you can borrow. This includes car loans, personal loans, credit cards (by limit, not balance), buy-now-pay-later accounts (Afterpay, Zip, Humm), and HECS/HELP debt. Lenders add up all your committed repayments and subtract them from your disposable income before assessing the loan.
The credit card limit issue catches many people off guard. If you have a $20,000 credit card limit you never use, lenders treat it as if you're repaying the full limit at a notional rate — typically reducing your borrowing capacity by $80,000–$100,000. Cancelling unused cards before applying is one of the fastest ways to improve your position.
Lenders use the Household Expenditure Measure (HEM) as a minimum benchmark for living costs. They'll use your declared expenses or HEM — whichever is higher. Since 2019, lenders have been required to more thoroughly scrutinise living expenses, often analysing 3–6 months of bank statements.
Be accurate with your expenses — not inflated, but not understated either. Outright underestimation is detectable through bank statement analysis, and lenders have become significantly better at identifying it. Artificially low expenses on your application can be a ground for declining the loan.
Not all properties are created equal in a lender's eyes. The following property types attract lower maximum LVRs or may be rejected by some lenders entirely:
This is where lender selection becomes critical — a property that one lender won't touch may be straightforward for another.
⚠️ Don't apply blind: Every home loan application leaves a hard enquiry on your credit file. Multiple declined applications in a short period can significantly damage your score and make future approvals harder. Talk to a broker first — they'll identify the right lender before you apply, protecting your credit file.
Yes, significantly. Most major lenders require you to have passed your probationary period before approving a home loan. Some lenders will consider applications if you're still in probation, but the panel is narrow and conditions may apply. If possible, wait until your probation ends before applying — or at least before the loan settles.
It depends on the default. Small, old, and paid defaults may still allow you to borrow from specialist lenders, though often at a higher rate. Large, recent, or unpaid defaults are much harder to work around. A mortgage broker who specialises in non-conforming lending can assess your options honestly.
Most lenders request 3 months of bank statements. Some request up to 6 months. They're looking for consistent income, honest expense levels, regular savings, and no unusual transactions (large unexplained withdrawals, gambling activity, or missed bill payments). The 3 months before you apply matter most.
It doesn't stop you, but it reduces your borrowing capacity. Lenders calculate your annual HECS repayment based on your income and treat it as a committed expense — reducing the surplus income available for loan repayments. The higher your income, the higher your HECS repayment threshold and the bigger the impact. It's worth modelling this before you start house hunting.
Use our free eligibility checker to get an instant score across the key criteria — no credit check, no sign-up required.